TaxTMI 
TaxTMI 
1987 (3) TMI 97
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....se of business ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that 'no other element of personal enrichment or favour or extra-commercial considerations came into play' in the payment of pension to Mr. William Rae and is not the above finding wrong and unreasonable ? 3. Whether, on the facts and in the circumstances of the case, and in view of the dictum laid down in Seshasayee Bros.' case [1971] 82 ITR 442 (Ker), is not the payment of pension merely an ex gratia payment by the assessee-company in consideration of the past services of Mr. Rae to the company ?" Question No. 2 is not framed properly and, therefore, the same has been recast as follows : " Whether, o....
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....ssioner, however, was allowed by the Appellate Tribunal by annexure-C order. The above questions arise out of annexure-C order of the Tribunal. We shall state the law first. Expenditure incurred in connection with payment of pension, gratuities and other voluntary payments to employees are deductible provided it is established that the payments were made for sound commercial purposes and with the object of facilitating the carrying on of the business. The fact that a third party other than the assessee is also benefited by the expenditure would not make it an expenditure not deductible under section 37 of the Income-tax Act. It should, however, be established that the payment was made in pursuance of a scheme for payment of such amounts,....
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....ng him as consultant. On May 9, 1950, the assessee entered into an agreement with Mr. William Rae. As per the agreement, the assessee was bound to pay Mr. Rae an annual fee of 2,000 pounds which, however, was later reduced to 1,000 pounds. On going through this agreement, the assessing authority opined that in the absence of a scheme for pension to retired directors, the payment could be considered only as an ex gratia payment. It is not disputed, and for that matter it cannot be disputed, that there was no scheme or any practice creating any legal obligation on the assessee to pay any pension or such similar benefits to a managing director on his retirement, while Mr. William Rae was in service. After the retirement of Mr. William Rae, ....
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....ay in the finalisation of the second scheme. And the time-lag between retirement and agreement with Mr. William Rae is not of a long duration. It is only a short period. That goes to show that the assessee ordinarily might have has intention to give the benefit of pension to Mr. William Rae while in service itself even before retirement, that it was not possible to do it at that time and that, that omission was made good by this agreement. If we view the three documents, the two schemes and the agreement with Mr. William Rae together as a whole, at least one thing becomes clear that it was not a favour done to any particular individual and that it was in the background of a genuine desire to give pensionary benefits to most of its employees....