TMI Blog1978 (8) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 53 ITR 140 (SC) on the one hand, and the unreported Division Bench ruling in ITR No. 66 of 1975 on the other. Some of the other decisions relating to the point were also noticed in the reference order made by the Division Bench and it was felt that the matter required consideration by a Full Bench. The facts are stated in the statement of the case sent up by the Income-tax Appellate Tribunal, Cochin Bench. The assessment year is 1971-72, the accounting year being the period from September 1, 1969, to August 31, 1970. The assessee is a company which has a registered office in Kerala, which went into voluntary liquidation on March 23, 1970. On March 7, 1970, it sold its stock and machinery to one Sudarsan Trading Company for a considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure of Rs. 4,44,988 is an expenditure incurred wholly and exclusively for the purpose of the business within the meaning of s. 37(1) of I.T. Act, 1961, as it applied to the assessment year 1971-72 ?" Section 37(1) of the I.T. Act reads: " 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and section 80VV) and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". In order to qualify for deduction under the Act it is necessary to show that the amount in questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting this case to be placed before a Full Bench, it was felt that the principle of certain decisions to which we shall immediately call attention, had not received consideration either by the Tribunal or in some of the decisions of this court which we have referred to earlier. Our attention was called to the Supreme Court's pronounce. ment in Haji Aziz and Abdul Shakoor Bros.'s case [1961] 41 ITR 350 and the Malayalam Plantations Ltd.'s case [1964] 53 ITR 140. In the earlier of these cases, it was observed : " A review of these cases shows that expenses which are permitted as deductions are such as are made for the purpose of carrying on the business, i.e., to enable a person to carry on and earn profit in that business. It is not enoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt in question falls under s. 36(1)(iv) of the I.T. Act and for that reason it is not an admissible item of deduction under s. 37 of the Act. No such contention seems to have been advanced before the Tribunal; and on the facts disclosed before us, we are unable to find that the claim falls under s. 36(1)(iv) of the Act, and for that reason, the assessee is dissentitled to claim exemption under s. 37 of the Act. Counsel for the revenue cited several rulings before us in support of his contention that a claim for deduction under s. 37 of the Act or the corresponding provision, viz., s. 10(2)(xv) of the earlier 1922 Act, can be successfully laid only if the claim does not fall within any one of the specific provisions of the Act. No authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Indian Income-tax Act the expression used is 'any expenditure laid out or expended wholly and exclusively for the purpose of such business'. This expression was introduced by the Amendment Act of 1939, and before the amendment the expression used was 'incurred solely for the purpose of earning such profits'. The formula now used in section 10(2)(xv) is wider than the formula used before the 1939 amendment. In my opinion it is not necessary that there should be any direct correlation in point of time between the expenditure and the earning of any profits. I have already stated that a sum of money may be spent not because of necessity or with a view to direct and immediate benefit to business, but if the expenditure is made on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of his future services but also for his past services. In order to ascertain the quantum of liability as on the date the order came into effect, the past services of the employees were also taken into account. Although no part of the gratuity may have been made payable by the assessee in any of the earlier years, the gratuity ascertained on an actuarial calculation after the Government order was held to be a liability in praesenti, capable of ascertainment, and was a permissible business expenditure in the assessment year concerned. The decision is quite in point. The principle of the decision was followed by the Delhi High Court in Delhi Flour Mills Co. Ltd.'s case [1974] 95 ITR 151 and also by the Bombay High Court in India United Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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