TaxTMI 
TaxTMI 
1961 (12) TMI 4
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....xv) of the Indian Income-tax Act to a gratuity paid by the appellant to one of its officers on his retirement from service. The appeal relates to the assessment year 1950-51. M/s. Gordon Woodroffee & Co. (Madras) Ltd., was incorporated as a private limited company in 1922 and became the managing agent of a public limited company M/s. Gordon Woodroffe Leather Manufacturing Company Ltd., which is the assessee. One J. H. Philips was employed in the managing agent company from 1922 to 1935 and from 1935 he became an employee of the appellant company and became its director from 1940. On March 22, 1949, he wrote a letter to the appellant company expressing his intention to resign from the board of the company as from April 4, 1949, upon his r....
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....'s books clearly indicated it to be a capital payment. Against this order the appellant company took an appeal to the Income-tax Appellate Tribunal which upheld the order of the Appellate Assistant Commissioner. It held that according to the resolution the gratuity was paid " for long and valuable services to the company " ; that there was nothing to indicate that Mr. J. H. Philips had accepted a lower salary in expectation of getting a gratuity at the end of his service ; that there was no such practice in the appellant company and that during the course of his service he was being remunerated at a graduated scale of salary and a commission of 2 1/2% on the profits ; that there was no " expectancy " that at the end of the service there wou....
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....amount or the company contemplated its payment at any time before ; the payment was voluntary and there was no evidence to show that it was in the future interest of the business of the company that the expenditure was incurred. The High Court observed : " In the case of a payment of a gratuity to a retiring employee in recognition of his past services, with nothing more, cannot, in our opinion, satisfy the requirements of section 10(2)(xv), even if those requirements are judged from the view point of commercial expediency, as it always should be when a claim arises under section 10(2)(xv). Was the expenditure incurred in the future interest of the business of the assessee ? Was there any connection between the purpose of the payment and....
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....rrying on of the business of the appellant company or as a matter of commercial expediency but in recognition of long and faithful. service of Mr. J. H. Philips. There was no practice in the appellant company to pay such amounts and it did not affect the quantum of salary of the recipient. The two cases strongly relied upon by the appellant company were J. P. Hancock v. General Reversionary and Investment Company Ltd. and J. W. Smith v. Incorporated Council of Law Reporting for England and Wales. In the former case the assessee company sought to charge as a trade expense a lump sum which it had paid for the purchase, for the benefit of a former actuary, of an annuity equal in amount to the pension which the company had resolved to pay him. ....