TMI Blog1970 (2) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts and in the circumstances of the case, the sum of Rs. 88,000 paid by the assessee to secure a pension to the director on his retirement is a permissible deduction in the computation of the assessee's business income? " The assessee is a limited company incorporated in the United Kingdom and carrying on business in buying and processing tobacco and as commission agents for other non-resident companies. It has a branch for the purchase and processing of tobacco in Guntur in the Andhra Pradesh State. It employs large number of Indian personnel and labour to carry on its business. Shri D. N. Murthy, an Indian national, took up employment in the company in 1938 as the resident manager of the branch at Guntur on a salary of Rs. 500 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of ten years commencing from the date of his retirement in 1960." A few months before his retirement at a meeting of the board of directors of the company held in London, a further resolution was recorded to the following effect : " It was resolved that in consideration of Mr. Murthy's past services to the corporation since 1938, in the capacity of resident manager and then resident director, he be granted a pension of Rs. 10,000 per annum payable to him or to his estate, as the case may be, for a period of ten years certain, the first payment to commence in April, 1961. " Sri Murthy eventually retired from the service of the company in October, 1960. The assessee-company on December 8, 1960, resolved to entrust the liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above would clearly show that Sri Murthy was due to retire in or about 1957. It is also clear that Sri Murthy had rendered invaluable services to the company from its inception and the company was anxious to retain him in service for a further period of three years. Minute No. 7 further discloses that there was a long and frank discussion between Sri Murthy and the managing committee on the subject of his retirement which would give an indication that while the assessee-company was anxious to retain him for a further period of three years, Sri Murthy was not willing to continue in service on the same terms and conditions and ultimately the prior agreement of service dated July 4, 1950, was modified by way of Minute No. 7 and Minute No. 8 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinued in service but the terms of payment of pension. An incorporated company acts through its board of directors and all acts of the board of directors are recorded by way of minutes which are required to be maintained by the statute under which the company is incorporated. That is admissible and unimpeachable evidence of what transpired, those resolutions regulate the business of the company as well as its rights and liabilities vis-a-vis its employees and sometimes even the third parties. There is no basis for rejecting these resolutions as inadmissible and requiring further proof of the variation of the terms of employment of Sri Murthy. That apart, the genuineness of those resolutions cannot be doubted ; there was no occasion for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That apart, the decision to make that payment was taken on the expiration of the term of service. In fact it was decided upon after the employee's resignation was accepted. The other test, viz., that the payment should have been made as a matter of practice, was applied in those circumstances. The Supreme Court, in our opinion, did not intend to lay down that any payment made contraryto the practice prevailing as the payment of pension or gratuity should necessarily be held to be an inadmissible deduction. In our opinion, what the Supreme Court intended to lay down was that if there is such a practice it would go a long way to satisfy the main test laid down by the Supreme Court, viz., that it was not a gratuitous payment and that it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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