Sudhindra Mohan Guha, J.
1. Whether, on the facts arid in the circumstances of the case, the payment of gratuity of Rs. 24,000 by theassessee-company to its ex-manager is deductible in computing its businessincome ?'
is the question referred by the Income-tax Appellate Tribunal under Section 256(1) of the Income-tax Act, 1961, to this court for answer.
2. The facts of the case, in a nutshell, may be stated as follows :
The assessee is a private limited company and derives income from business in running a printing press. The assessment year involved is 1966-67, the corresponding accounting year being the year ending on 31st March, 1966. During the year of account, the assessee paid Rs. 24,000 as gratuity to its ex-manager, Mr. H. J. Hallen, who retired after putting in a service of 20 years with the assessee-company. The assessee claimed the payment as a deduction in the computation of its taxable income for the assessment year 1966-67. The ITO disallowed the claim on the ground that no appointment letter was produced before him, that the payment was first of its kind, and that it was in the nature of an ex gratia payment and, therefore, not allowable.
3. The assessee came up in appeal before the AAC. The AAC upheld the findings of the ITO and dismissed the appeal.
4. The assessee then preferred a further appeal before the Appellate Tribunal. It was contended on behalf of the assessee that Mr. Hallen was in the service of the company for the last 20 years when he retired, that the payment of gratuity to him was not doubted by the department and that as he was appointed about 20 years ago, the letter of appointment could not be traced. It was also submitted that Mr. Hallen was highly qualified and he was not related to any of the directors of the company, nor was he a shareholder and that the payment was made only for commercial expediency having in mind the progressive labour laws. Reliance was placed on a resolution dated 10th May, 1961, which was passed to the effect that the question of gratuity payment to the members of the executive staff would be decided by the board of directors in terms of the rules in practice for gratuity.
5. The Tribunal held that the payment was allowable on the ground of commercial expediency, though it was made voluntarily by the assessee without any legal obligation to pay.
6. The aforesaid conclusion reached by the Tribunal is sought to be assailed by Mr. B. K. Bagchi, learned counsel for the revenue, by placingreliance on the decision of the Supreme Court in the case of GordonWoodroffe Leather Manufacturing Co. v. CIT : 44ITR551(SC) . The proper test for the payment of gratuity as said by the Supreme Court is whether the payment was made as a matter of practice which affected thequantum of salary or was there an expectation by the employee of gettinga gratuity, or was the sum of money expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of thebusiness of the assessee. According to Mr. Bagchi, it has not been foundby the Tribunal that Rs. 24,000 was paid to Mr. Hallen in order indirectlyto facilitate the carrying on of the business of the assessee and, therefore,the payment of this gratuity to him is not an allowable deduction. Butthe findings of the Tribunal are as follows:
'We consider that the payment of gratuity to Mr. Hallen was made for the purpose of the business and on account of commercial expediency. We would in this connection emphasise the absence of a provident fund scheme covering him. This is thus a kind of terminal benefit to which he could reasonably have looked forward to. The company has derived considerable benefit during the two decades of his service.'
7. We have underlined the relevant portion only to show that there is no merit in the aforesaid contention of Mr. Bagchi.
8. In the premises, we answer the question in the affirmative and in favour of the assessee.
9. We, however, make no order as to costs.
10. I agree.