TMI Blog1998 (11) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstantially interested, under the Income-tax Act for the assessment year 1986-87. During the assessment year, the assessee purchased air tickets for Sri A. M. M. Arunachalam, his wife, Smt. A. R. Lakshmi, and his relative Smt. Valli Alagappan, for their travel to the U. K. at the cost of Rs. 70,994. It also purchased demand draft and travellers cheques in foreign currency for Sri Arunachalam's treatment and the living expenses of Sri Arunachalam, his wife and relative in the U. K. Their visit to the U. K. was for a by-pass surgery for Sri Arunachalam. The amount so spent was not an amount which the company was required to spend under the terms of the contract of employment of Sri Arunachalam by the company. It is not disputed that Sri Arunachalam had been appointed as an adviser to the company by letter dated January 17, 1981, which sets out the terms of his employment. In terms of that letter of appointment, he was to be paid a sum of Rs. 4,250 towards monthly salary, Rs. 450 per month towards engagement of a private servant. He was also to be provided medical facility for himself and his wife to the extent available under the assessee-company's medical insurance scheme. In add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o held that the expenditure was incurred for the purpose of the assessee's business, as the said Sri Arunachalam had offered valuable advice to the assessee-company and the other group companies in the past and considering his standing in the business world, the advice rendered by him was valuable. The Revenue being aggrieved by the decision of the Tribunal, the above two questions have been referred to us at the instance of the Revenue. We may dispose of the second question first as the true scope of section 40A(5) of the Act has now been explained authoritatively by the Supreme Court in the case of CIT v. Mafatlal Gangabhai and Co. (P.) Ltd. [1996] 219 ITR 644, wherein it has been held that cash payments are outside the purview of section 40A(5) of the Act. The expenditure incurred by the assessee having been incurred by way of payments made in cash such payments do not attract section 40A(5) of the Act. The second question referred to us, is required to be and is answered in favour of the assessee and against the Revenue. Learned counsel for the Revenue submitted that the expenditure incurred by the assessee-company on the medical treatment, travel and stay of Sri Arunacha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut or expended for the purpose of the business within the meaning of section 10(2)(xv) of the Indian Income-tax Act, 1922. There also the payment had been made to a former employee "in appreciation of his long and valuable services to the company". The company there did not have any scheme for the payment of gratuity nor was the payment of gratuity a matter of practice. There was also nothing to show that the employee had accepted t low salary in expectation of a gratuity on retirement nor was there anything to show that the gratuity was paid for the purpose of facilitating the carrying on of the business of company or as a matter of commercial expediency. The apex court in the case of Gordon Woodroffe Leather Manufacturing Company v. CIT [1962] 44 ITR 551 held that : "The proper tests to apply in a case like this are whether the payment was made as a matter of practice which affected the quantum of salary or there was an expectation by the employee of getting a gratuity or the sum of money was paid on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business". In this case also there is nothing on record to show that Sri Arunach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch expenditure can be regarded as one incurred wholly and exclusively for the purpose of business of the assessee. Learned counsel for the assessee invited our attention to the decision of the Madhya Pradesh High Court in the case of CIT v. Steel Ingots Pvt. Ltd. [1996] 220 ITR 552 and to the decision of the Bombay High Court in the case of Mehboob Productions Pvt. Ltd v. CIT [1977] 106 ITR 758 and submitted that expenditure on the travel and medical treatment of directors having been allowed in those cases, similar allowance in this case would be justified. On a perusal of those decisions we do not find any reference in these decisions to the decision of the Constitution Bench of the Supreme Court in the case of Gordon Woodroffe Leather Manufacturing Co. [1962] 44 ITR 551, and we are unable to derive any assistance from those decisions. The tests as laid down by the Supreme Court in the case of Gordon Woodroffe Leather Manufacturing Co. [1962] 44 ITR 551, as set out in the case of Sassoon J. David and Co. P Ltd. [1979] 118 ITR 261 (SC) are : "(i) that the payment should have been made as a matter of practice which affected the quantum of salary, (ii) that there was an exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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