Gratuity deduction denied where first-time retirement payment lacked practice, employee expectation, or commercial expediency.

A first-time gratuity payment to an employee on retirement was held not deductible as business expenditure under section 10(2)(xv) of the Income-tax Act, 1922. The court applied the test that such a payment must be shown to arise from an established business practice affecting remuneration, an employee's expectation based on lower salary, or commercial expediency connected with the business. On the facts, there was no scheme, no prior practice, and no evidence that the employee accepted reduced remuneration in anticipation of gratuity. The assessee therefore failed to discharge the burden of proving entitlement to deduction, and the reference was answered against it.

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Issues: Whether the sum of Rs. 21,000 paid to an employee on retirement as gratuity was an allowable deduction under section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The deduction was claimed for a first-time gratuity payment made without any established practice, scheme, or evidence that the employee had accepted lower remuneration in expectation of gratuity. The governing test required proof that the expenditure was made as a matter of practice affecting salary, in expectation by the employee, or on grounds of commercial expediency so as to facilitate the business. On the facts found, none of these circumstances was shown, and the burden of proving entitlement to deduction remained on the assessee.

Conclusion: The payment was not an admissible business deduction under section 10(2)(xv) and the answer to the reference was against the assessee.

Ratio Decidendi: A gratuity paid for the first time, without a pre-existing practice, employee expectation, or commercial expediency connected with the business, is not deductible as business expenditure under section 10(2)(xv) of the Income-tax Act, 1922.

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