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TMI Blog1973 (2) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ---- For the assessment year 1963-64, corresponding to the previous year ending December 31, 1962, the assessee claimed deduction by way of gratuity, a sum of Rs. 7,000 paid to one Rangian, a cashier of the company. All the sums were disallowed by the Income-tax Officer on the ground that there was no scheme for payment of gratuity and that the receipts for payment of the said gratuity amounts showed that they have been paid as ex gratia in view of their past services. The Income-tax Officer purported to follow the decision of the Supreme Court in Gordon Woodroffe Leather Mfg. Co. Ltd. v. Commissioner of Income-tax. There were appeals to the Appellate Assistant Commissioner against the disallowance of the gratuity amounts in respect of both the years. The Appellate Assistant Commissioner also upheld the disallowance on the ground that there was absolutely no basis for the computation of gratuity, that there was no scheme for payment of gratuity, nor was there any precedent and that there was no evidence that the employees had accepted low salaries in expectation of the gratuities. The assessee went on appeal to the Tribunal. It was urged before the Tribunal that the existence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct for the year 1962-63 ? and (2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of Rs. 7,000 under section 10(2)(xv) of the Income-tax Act for the assessment year 1963-64 ? " The learned counsel for the assessee contends that the Tribunal has upheld the disallowance of the amounts paid as gratuity mainly on two grounds : (1) that there is no scheme of gratuity, and (2) that the receipts given by the employees refer to the payments as ex gratia, that the above reasons are not conclusive in the matter and that the Tribunal should have upheld the claim for allowance as the payments were really legitimate expenditure incurred wholly and exclusively for the purpose of the business. It is stated that the payments have been made only as business expenditure and that though the payment had been made without a regular scheme for gratuity, it can still be allowed as a business expenditure under section 37(1) of the Act. The learned counsel refers to the following observations of Lord Cave, Lord Chancellor, in Atherton v. British Insulated and Helsby Cables Ltd. which has been quoted with approval by the Supreme Court in Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... still four years of service. This, as it seems to us, is an important fact which should have been borne in mind by the Tribunal in considering this question and which distinguihes the ratio of Gordon Woodroffe Leather Manufacturing Co. Ltd. v. Commissioner of Income-tax. " The principle laid down in that decision, as we understand, is that even if there is no regular pension scheme, a business concern may consider the payment of pension even in relation to a single employee if the payment has been decided upon when the employee was in service, in the interests of its business in future. But, in this case, there is no evidence that the decision to pay gratuity to the concerned employees was taken even during the currency of their employment. We are not able, to apply the principle laid down in Indian Overseas Bank Ltd. v. Commissioner of Income-tax to the facts of this case. The decision of the Supreme Court in Gordon Woodroffe Leather Manufacturing Co. Ltd. v. Commissioner of Income-tax seems directly to apply to this base. In that case, an employee of the company resigned and the board of directors while accepting his resignation resolved to pay a gratuity of Rs. 50,000 out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment was not ex gratia or isolated payment, but was made under an understanding, undertaking or practice, between the assessee and its employees, and that it is only in cases where it is shown that the expenditure has been incurred in pursuance of an understanding between the assessee and the employee or in pursuance of a uniform commercial practice followed by the assessee, the expenditure can be claimed as an allowance under section 10(2)(xv). In Sassoon J. David and Company Pvt. Ltd. v. Commissioner of Income- tax , the Bombay High Court disallowed gratuity payments on the ground that there was no regular practice of payment of gratuity and that, as such, there was no legally enforceable claim for such payment, against the assessee, and that, therefore the gratuityamounts paid cannot be allowed under section 10(2)(xv). The learned judges in that case, applied the test propounded by their Lordships in the Supreme Court in Gordon Woodroffe Leather Manufacturing Co. Ltd. v. Commissioner of Income-tax as to whether the expenditure has been incurred in order to directly or indirectly facilitate the future carrying on of the business of the company. Having regard to the findings g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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