1962 (4) TMI 132

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....nt of the sum of Rs. 38,509 was an expenditure in the nature of capital and as such not admissible under section 10(2)(xv) of the Act?" The facts giving rise to the reference are: The assessee is a private limited company. It succeeded to the business of a partner ship. The partnership business was started on May 1, 1944. From the very commencement of the business one J.P. Vaish was appointed its general manager and he continued to be the general manager of the partnership business until June 30, 1947. It may be stated that the accounting period of the partnership business ended every year on the 30th June. On July 8, 1947, Sri J.P. Vaish died. On July 12, 1947, his widow wrote a letter to the proprietors of the firm "claiming" gratuity ....

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....ome for the assessment year 1949-50, for the entire period, July 1, 1947, to June 30, 1948. The department accepted the position of the company as virtually carrying on the business during that period and as having earned the income which was returned and the assessment was completed in the hands of the company. The company claimed that the payment of Rs. 38,509 as gratuity to the widow of Sri J.P. Vaish was an admissible deduction under section 10(2)(xv). This was refused by the income-tax authorities and by the Income-tax Appellate Tribunal on the ground that the payment was of a capital nature and was made by the company under the agreement by which it had undertaken the liabilities of its predecessor firm. In this view the Tribunal did ....

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.... understanding or practice and the payment was merely an isolated payment on a solitary occasion governed only by considerations of sympathy or pity then obviously the payment could not have been said to have been incurred even partially, much less "wholly and exclusively", for the purpose of carrying on of the business of the assessee. There may be a case where having regard to an undertaking or understanding or practice in this behalf low salaries might be acceptable to the employees in the expectation that they would in any case be entitled to a gratuity on death or on retirement. In that case the payment of gratuity would be part of salary or remuneration and would not be an ex gratia payment. The difference would be this that if such a....