Gratuity deduction allowed where payment during service met alternative business-purpose tests and was not shown to be excessive.

Gratuity paid to an employee during service, pursuant to prior intimation and a board resolution, may be deductible as business expenditure if it satisfies any one of the recognised tests for being laid out wholly and exclusively for business. The Court treated the Gordon Woodroffe Leather Manufacturing Co. tests as disjunctive and alternative, and accepted both a sufficient employee expectation of gratuity and commercial expediency on the facts. The absence of a fixed formula for quantifying the gratuity did not by itself defeat the deduction, and the revenue failed to show that the amount was excessive or unreasonable.

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Issues: Whether gratuity paid to an employee on retirement was allowable as a deduction as business expenditure.

Analysis: The payment was made during the employee's service, after prior intimation and pursuant to a board resolution. The Court held that the tests stated in Gordon Woodroffe Leather Manufacturing Co. are disjunctive and alternative, and that satisfaction of any one of them is sufficient to establish that the payment was laid out wholly and exclusively for the purposes of business. On the facts, the employee had a sufficient expectation of gratuity, and the payment was also commercially expedient. The Court further held that the absence of a fixed formula for quantifying the gratuity did not by itself disqualify the deduction, and the revenue had not shown that the amount was excessive or unreasonable.

Conclusion: The gratuity was allowable as a deduction.

Ratio Decidendi: A gratuity paid during service pursuant to prior intimation and a board resolution is deductible if it satisfies any one of the recognised tests, including reasonable employee expectation or commercial expediency, because those tests are alternative means of showing that the expenditure was laid out wholly and exclusively for business purposes.

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