TaxTMI 
TaxTMI 
TaxTMI 
1966 (6) TMI 11
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 17 of the Banking Companies Act is sufficient compliance with the requirements of section 10(2)(vib), proviso (b), of the Indian Income-tax Act, 1922? and (2) Whether, on the facts and in the circumstances of the case, the pensions paid to Mr. Subbiah in the assessment years 1953-54 to 1959-60 were expenditure laid out wholly and exclusively for the purpose of the business under section 10(2)(xv)?" The assessee is a public limited company carrying on business in banking. One Sri A. Subbiah was appointed as general manager of the bank for a period of seven years from April, 1945, under the terms of a contract of service. On his retirement on March 31, 1952, he was co-opted as a director with effect from April 1, 1952. Even when he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsion. In view of these circumstances, the Tribunal thought that the payment was in recognition of the past services of Sri. A. Subbiah and not in regard to the future interest of the assessee's business. The other claim for deduction, which is confined to the assessment year 1959-60, is a sum of ₹ 1,37,836, representing development rebate. This claim was eventually disallowed by the Tribunal on the ground that one of the conditions requisite for the allowance of the claim as a deduction under proviso (b) to Explanation 2 to section 10(2)(vib) was not complied with. At earlier stages the revenue thought that the expenditure did not relate to the category of plant and machinery installed. But this view is no longer pressed before ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h one is that an amount equal to seventy-five per cent. of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during a period of ten years next following for the purposes of the business of the assessee. But this sum cannot be diverted for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India. If the machinery or plant in question is sold or otherwise transferred by the assessee to any person other than the Government at any time before the expiry of ten years, the allowance made under this clause shall be deemed to have been wrongl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ne of the conditions prescribed by clause (b) to the proviso, unless it is complied with, the assessee cannot successfully claim the deduction under this head. A similar view was taken by this court in Commissioner of Income-tax v. Veeraswami Nainar [1965] 55 I.T.R. 35, 39, as to the effect of clause (b) to the said proviso. There it was observed: "It will be apparent from the terms of the proviso that the object of the legislature is allowing a development of the assessee's business from out of the reserve fund. The entries in the account books required by the proviso are not an idle formality. The assessee being obliged to credit the reserve fund for a specific purpose, he cannot draw upon the same for purpose other than those....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e ration of Gordon Woodroffe Leather Manufacturing Company v. Commissioner of Income-tax [1962] 44 I.T.R. 551, 555 (S.C.). That was a case where an employee resigned, and thereafter a voluntary payment was resolved upon and paid. This court on a reference held that this was not eligible for deduction as it was but an ex gratia payment. The Supreme Court upheld this view, and in doing so, observed: "In our opinion the proper test to apply in this case is, was the payment made as a matter of practice which affected the quantum of salary or was there an expectation by the employee of getting a gratuity or was the sum of money expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the bus....