Commercial expediency permits deduction of retirement pension paid to a long-serving employee as a reasonable business expense.

A pension paid to a former employee under a board resolution was treated as a deductible business expense because it was granted in recognition of long service and as a retirement benefit linked to commercial expediency. The employee had served the company for more than thirty years, had been continued after retirement, and had an expectation of retirement benefits under the company's gratuity arrangement. The payment was not viewed as a purely voluntary ex gratia payment, especially since a similar benefit had earlier been granted to another employee. Applying a businessman's perspective, the amount was considered reasonable and incurred in the course of business, so it was allowable in computing income.

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Issues: Whether pension paid to a former employee pursuant to a board resolution was an allowable deduction in computing the assessee-company's income for the relevant assessment year.

Analysis: The payment was made to an employee who had served the company for over thirty years and had been continued in service after retirement. The company had introduced a gratuity scheme in 1957, and the employee was found to have been expecting some retirement benefit. The resolution granting pension showed that the payment was made in recognition of past services and in substitution of a benefit that the employee had effectively missed under the gratuity arrangement. The circumstances also showed an earlier instance of similar benefit being granted to another employee, so the payment could not be treated as an isolated purely voluntary payment. Applying the test of commercial expediency, and viewing reasonableness from the businessman's point of view, the amount was not excessive and was incurred in the course of the business.

Conclusion: The pension payment was an allowable deduction and the question was answered in the affirmative in favour of the assessee.

Ratio Decidendi: A payment made to a retired or retiring employee, in recognition of long service and as a commercially expedient retirement benefit, is deductible if it is not a purely voluntary ex gratia payment and is reasonable from the businessman's point of view.

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