Business expenditure on gratuity to ex-employee disallowed absent statutory duty, service term, or proved commercial necessity.

Gratuity paid to a former sales manager was not allowable as business expenditure because it was not shown to arise from any statutory obligation, enforceable service condition, or established practice. The record also did not show that the employee had accepted lower salary in expectation of retirement benefits or that any proven commercial necessity justified the payment. In the absence of evidence of comparable payments or a demonstrated business basis for the outlay, the gratuity could not be treated as an admissible deduction. The issue was answered against the assessee and in favour of the Revenue.

---

---

Issues: Whether gratuity paid to a former sales manager was admissible as business expenditure in the absence of any established practice, statutory obligation, or term of service supporting such payment.

Analysis: The payment was not shown to be made under any statute or under the employee's terms and conditions of service. The material on record did not disclose any practice of paying gratuity to retiring or ex-employees, nor any evidence that the employee had accepted a lower salary in anticipation of such a benefit at retirement. The asserted commercial expediency was unsupported by evidence of comparable payments or any proven expectation on the part of the employee. On the facts found, the gratuity could not be treated as an allowable business outlay.

Conclusion: The payment of gratuity was not admissible as business expenditure.

Final Conclusion: The question referred was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: A gratuity paid to an ex-employee is not allowable as business expenditure unless it is shown to arise from a statutory obligation, enforceable service condition, established practice, or proved commercial necessity supported by evidence.

---