Commercial expediency supports deduction of gratuity paid under an existing employee scheme as revenue expenditure.

Gratuity paid to employees under an existing business scheme was treated as revenue expenditure because it was incurred in the course of business and supported by commercial expediency. The payments were made to the assessee's own employees after a business merger, and the Tribunal found that retiring employees above the specified age helped retain the remaining staff and maintain workplace contentment. The expenditure was therefore not treated as part of the purchase price of any new business. The gratuity deduction was allowed as revenue expenditure, with the question answered in favour of the assessee.

---

---

Issues: Whether gratuity paid to employees pursuant to an existing scheme and in the course of business was allowable as a revenue deduction on the ground of commercial expediency.

Analysis: The assessee had an established practice and scheme of paying gratuity on cessation of service. The Tribunal found that the payments were made to the assessee's own employees, that the business taken over had merged with the assessee's business, and that the retirement of employees above the specified age was commercially expedient. The payment was also found to serve the business purpose of retaining the remaining staff and maintaining contentment among them. Applying the governing principles on gratuity payments, the expenditure was held to have been incurred in the course of business and not as part of the purchase price of any new business.

Conclusion: The gratuity payment was allowable as a revenue deduction and the question was answered in favour of the assessee.

Ratio Decidendi: Where gratuity is paid under an existing business practice or scheme and the payment is commercially expedient for carrying on the business, it is allowable as revenue expenditure.

---