TMI Blog1980 (2) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... during the accounting year relevant to the assessment year 1964-65 and was, therefore, deductible in the assessment for the said year ? " The assessee is a private limited company. The assessment year involved is 1964-65, for which the relevant previous year commenced on June 1, 1962, and ended on May 31, 1963. The assessee claimed before the ITO that Rs. 50,000 paid to the two retiring directors was deductible in the assessment for the aforesaid year. The ITO found that 400 out of 600 shares of the assessee-company were held by those two directors and the balance shares were held by the managing director. He also found that the services of those two directors were terminated with effect from May 31, 1963, and that the agreement betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n annual recurring payment of over Rs. 50,000 by getting rid of those two undesirable directors. It was also pointed out to the Tribunal that the board of directors passed a resolution on May 31, 1963, authorising the managing director to grant compensation to the outgoing directors at the rate of Rs. 25,000 each on their retirement as settled. The resolution also provides that an agreement has to be executed in that behalf by these two directors with the assessee-company. It was submitted that Rs. 50,000 was paid on the ground of commercial expediency and this amount was laid out wholly and exclusively for the purpose of the assessee's business and, therefore, it was a deductible expenditure. The departmental representative did not agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue expenditure in view of the third test laid down in its earlier judgment in the case of Gordon Woodroffe Leather manufacturing Co. v. CIT [1962] 44 ITR 551 (SC). The aforesaid test laid down in Gordon Woodroffe's case directly applies to the facts and circumstances of this case and, therefore, we answer question No. 1 in the affirmative and against the revenue. Although it was argued before the Tribunal on behalf of the revenue that the liability to pay the aforesaid amount did not arise during the accounting year, the Tribunal did not decide that point. In view of the judgment of the Supreme Court in the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589, it must be held that question No. 2 arises out of the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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