Business deduction requires legal necessity: voluntary post-sale payment disallowed, section 35B commission claim denied, gratuity provision allowed.

A voluntary post-sale payment made long after completion of the transaction was not deductible as business expenditure because no subsisting encumbrance, legal obligation, defective title, or direct business necessity was proved; the disallowance was upheld. Weighted deduction under section 35B was also unavailable for commission paid to dealers in India, as the point was treated as covered against the assessee. The gratuity provision was accepted as an allowable deduction, with the issue decided in the assessee's favour. The governing principle is that a goodwill-based payment is deductible only when supported by the record and by a real legal or commercial compulsion.

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Issues: (i) whether the sum of Rs. 25,000 paid by the assessee to the purchaser of property, long after the sale, was an allowable business deduction; (ii) whether weighted deduction under section 35B was allowable in respect of commission paid to dealers in India; and (iii) whether the gratuity provision was an allowable deduction.

Issue (i): whether the sum of Rs. 25,000 paid by the assessee to the purchaser of property, long after the sale, was an allowable business deduction

Analysis: No material established any subsisting encumbrance on the property or any legal obligation requiring the assessee to make the payment years after the sale. The assessee also failed to show that its title was defective or that reimbursement to the purchaser was legally compelled. The plea that the payment was made to preserve goodwill and reputation was neither the case before the authority below nor supported by the facts, since the payment was voluntary and remote from the original transaction.

Conclusion: The payment was not allowable as a deduction and the issue was decided in favour of the Revenue.

Issue (ii): whether weighted deduction under section 35B was allowable in respect of commission paid to dealers in India

Analysis: The parties agreed that this question stood covered by an earlier decision and had to be answered against the assessee.

Conclusion: Weighted deduction under section 35B was not allowable, and the issue was decided in favour of the Revenue.

Issue (iii): whether the gratuity provision was an allowable deduction

Analysis: The parties agreed that this question had to be answered in the assessee's favour.

Conclusion: The gratuity provision was allowable as a deduction, and the issue was decided in favour of the Assessee.

Final Conclusion: The reference was answered partly against the assessee and partly in its favour, with the disallowance of the Rs. 25,000 payment and the denial of weighted deduction upheld, while the gratuity provision was allowed.

Ratio Decidendi: A voluntary post-sale payment is not deductible as business expenditure unless a legal obligation, subsisting encumbrance, or direct business necessity is proved; goodwill-based justification must be supported by the record.

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