1974 (6) TMI 16 - HC - Income Tax

Summary

Issues:
1. Deduction claimed under section 37 of the Income-tax Act for gratuity payment to transferred employees.
2. Claim of rebate under section 88(1) for charitable donations.

Analysis:

Issue 1:
The case involved a public limited company claiming a deduction under section 37 of the Income-tax Act for a gratuity payment of Rs. 56,275 made to transferred employees of a subsidiary company formed during the assessment year 1963-64. The Income-tax Officer, Appellate Assistant Commissioner, and Tribunal held that the amount transferred was not an allowable deduction as it constituted a mere transfer of funds, not an expenditure. However, the Tribunal found the payment to be deductible as it discharged the company's obligation to the employees, even though no direct payment was made to the employees. The High Court, considering the Supreme Court's decision in Commissioner of Income-tax v. Gemini Cashew Sales Corporation, concluded that the transfer did not qualify as an expenditure wholly and exclusively for business purposes. The liability was contingent, not arising during the accounting period, and did not meet the criteria for a deductible expense under section 37.

Issue 2:
Regarding the claim of rebate under section 88(1) for charitable donations amounting to Rs. 7,050, the Income-tax Officer, Appellate Assistant Commissioner, and Tribunal rejected the claim since the amount was paid from a reserve fund, not from the income during the year. The High Court upheld this decision, emphasizing that for a donation to be eligible for rebate under section 88, it must form part of the assessable income of that year. Referring to section 66 of the Act and previous case law, the Court determined that only the portion of the donation derived from the income during the year, Rs. 174 in this case, was eligible for the rebate. Therefore, the assessee was entitled to relief under section 88 only to the extent of Rs. 174, not the entire sum of Rs. 7,050.

In conclusion, the High Court ruled against the assessee on both issues, denying the deduction claimed under section 37 for gratuity payment and limiting the rebate under section 88 to Rs. 174 for charitable donations. The revenue was awarded costs amounting to Rs. 250.