TaxTMI Login
AI OCR ✕Convert scanned orders, printed notices, PDFs and images into clean, searchable, editable text within seconds. Starting at 2 Credits/page
Try Now →Just a moment...
AI OCR ✕Convert scanned orders, printed notices, PDFs and images into clean, searchable, editable text within seconds. Starting at 2 Credits/page
Try Now →
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: Whether the sum of Rs. 1,00,000 paid as compensation on termination of the managing director's services was an allowable deduction as expenditure laid out wholly and exclusively for the purpose of the assessee's business under section 10(2)(xv).
Analysis: The governing test is whether the expenditure was incurred wholly and exclusively for business purposes, judged objectively on principles of commercial expediency. A payment made in bona fide settlement of an employee's claim for compensation for termination of service is not to be disallowed merely because the taxing authority considers the amount excessive or thinks that a smaller sum would have sufficed. Where the transaction is genuine, untainted by collateral purpose, and an ordinary prudent businessman could reasonably make the settlement, the deduction cannot be denied on a subjective view of what might have been awarded in litigation or on a notion of reasonableness adopted by the revenue.
Conclusion: The payment of Rs. 1,00,000 was deductible as business expenditure. The answer to the reference was in the affirmative, in favour of the assessee.
Ratio Decidendi: Compensation paid bona fide in settlement of termination of employment is allowable if it is incurred on grounds of commercial expediency and is wholly and exclusively for the purpose of the business, and the revenue cannot substitute its own subjective standard of reasonableness.
TaxTMI 
TaxTMI 
