TMI Blog1997 (2) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... t to Mrs. Ghaswala, the wife of the former director is an admissible deduction in computing the income of the assessee ?" The assessee is a company and in the course of the assessment proceedings for the assessment year 1976-77 the assessee claimed deduction in computing its business income of a sum of Rs. 15,600 paid by way of pension to Mrs. Ghaswala, wife of the late Sri Ghaswala, a former director of the assessee-company. The Income-tax Officer disallowed the claim of the assessee holding that the payment could not be said to have been laid out wholly and exclusively for the purpose of the business and the provisions of section 37 were inapplicable. The assessee then preferred an appeal before the Commissioner of Income-tax (Appeals). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... December 2, 1964, was slightly modified by a resolution dated July 26, 1968, and by that resolution the pension which was earlier fixed at Rs. 1,100 per month was increased to Rs. 1,300 per month. It was also noticed in that resolution that Mr. Ghaswalla would be retiring on July 31, 1968. The Commissioner of Income-tax (Appeals) held that the payment of pension to Mrs. Ghaswala was a continuation of the pension paid to Mr. Ghaswala after his death for the same fixed period for which Mr. Ghaswala would, be entitled to the pension. Further, he also noticed that the pension was primarily to have been paid to the director on his retirement and only in the event of his death, it was to be continued for the fixed term for which the pension was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that payment made out, was not of commercial consideration and is not allowable as a business expenditure. Mr. P. P. S. Janarthana Raja, on the other hand, brought to our notice the earlier resolutions of the company as well as the earlier order of the Commissioner of Income-tax (Appeals). He also placed reliance on the decision of the Gujarat High Court in CIT v. Laxmi Cement Distributors Pvt. Ltd. [1976] 104 ITR 711 and submitted that the amount was paid in consideration of the past service of the director and also in recognition of the service rendered by the deceased director of the company. He also submitted that the finding recorded by the Appellate Tribunal has not been challenged by the Department in the reference and in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyee that he would be paid the pension after his retirement and after his life time, his wife and family members would be taken care of by the assessee and it would generate in the mind of the employee a sense of satisfaction and it will promote goodwill leading to a better relationship between the employee and the employer. The Tribunal, therefore, taking all these factors into consideration, has found that the payment was made only on the basis of commercial consideration and hence the same was allowable as a business expenditure, The decision relied on by learned counsel in the case of Amalgamations (P.) Ltd. v. CIT [1995] 214 ITR 396 (Mad) has no application to the facts of the case. In that case, it is seen that payment was made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e carrying on of the business of the assessee. It is seen from the facts of the case that a resolution was passed even during the period when Mr. Ghaswala was working as a director and in that resolution it was provided that the pension would be paid to Mr. Ghaswala and on his death his wife would be paid pension. There was an expectation in the mind of the employee that the pension payment will be made to him and after his demise to his legal heirs. Hence, the second test laid down by the Supreme Court in the case of Gordon Woodroffe Leather Mfg. Co. v. CIT [1962] 44 ITR 551 is fully satisfied in this case. The third test, viz., that the money was paid out of commercial expediency is also satisfied. It is seen that the payment was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g capacity of the employer and other relevant circumstances. If a prudent employer, conscious of the new trend and ethos, voluntarily makes such payment in order to avoid such dispute and to buy industrial peace and contentment amongst workers, it could certainly be treated as having been made on the ground of commercial expediency." The Bombay High Court in the case of CIT v. Fairdeal Corporation Pvt. Ltd. [1977] 108 ITR 280 has held that the payment of pension to the widow, even where there was no practice for payment of pension is allowable as business expenditure. Applying the said decisions to the facts of the case, we are of the view that the Tribunal has come to a correct conclusion that the payment was made on the basis of commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
