Voluntary gratuity to retiring employee lacks commercial expediency and is not deductible as business expenditure.

A voluntary gratuity paid to a retiring employee, made in recognition of past services and not under any gratuity scheme or established practice, was held not to qualify as expenditure laid out wholly and exclusively for business. The absence of any expectation by the employee, any effect on salary, or any business necessity meant the payment lacked commercial expediency. The gratuity was therefore not deductible under section 10(2)(xv) of the Income-tax Act, 1922, and the finding was against the assessee.

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Issues: Whether the gratuity paid to a retiring employee was an admissible deduction as expenditure laid out wholly and exclusively for the purpose of the assessee's business under section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The payment was a voluntary gratuity made in recognition of past services, not pursuant to any gratuity scheme or established practice. There was no evidence that the employee expected such payment, that it affected his salary, or that it was made to facilitate the carrying on of the business. On the findings recorded, the expenditure lacked the element of commercial expediency required for deduction under the provision.

Conclusion: The gratuity was not deductible under section 10(2)(xv) of the Income-tax Act, 1922, and the finding was against the assessee.

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