Tribunal Decision Upheld: Deduction Allowed for Voluntary Gratuity Payment

The High Court upheld the Tribunal's decision, ruling in favor of the assessee company. The court allowed the deduction of Rs. 24,000 as gratuity paid to the ex-manager, considering it was for business purposes and commercial expediency, despite being voluntary and not legally obligatory. The judgment, delivered by Sudhindra Mohan Guha J., with agreement from Judge S. C. Deb, did not award any costs in the case.

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Issues:
Whether the payment of gratuity of Rs. 24,000 by the assessee-company to its ex-manager is deductible in computing its business income.

Analysis:
The case involved a private limited company running a printing press, which paid Rs. 24,000 as gratuity to its ex-manager who had served for 20 years. The Income Tax Officer (ITO) disallowed the deduction claiming it was an ex gratia payment and not allowable. The Appellate Authority Commission (AAC) upheld this decision. The assessee then appealed to the Appellate Tribunal, arguing that the payment was made for commercial expediency and based on a resolution passed by the board of directors. The Tribunal allowed the payment as deductible based on commercial expediency, even though it was voluntary and not legally obligatory.

The revenue's counsel challenged the Tribunal's decision, citing a Supreme Court case which outlined the test for gratuity payments based on commercial expediency. The counsel argued that the payment did not indirectly facilitate the business and thus should not be deductible. However, the Tribunal found that the payment to the ex-manager was for business purposes and commercial expediency, emphasizing the absence of a provident fund scheme for the employee and the benefits derived by the company from his service over two decades.

The High Court, concurring with the Tribunal's findings, held that the gratuity payment was made for the purpose of the business and commercial expediency. The court rejected the revenue's contention and ruled in favor of the assessee, allowing the deduction of Rs. 24,000 as gratuity. The judgment was delivered by Sudhindra Mohan Guha J., with agreement from Judge S. C. Deb. No costs were awarded in the case.

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