9911796707
|
Home
Issues:
Allowability of pension payment as a deduction in computing the company's income for the assessment year 1961-62. Analysis: The case involves a reference under s. 66(1) of the Indian I.T. Act, 1922, regarding the allowability of a pension payment of Rs. 6,672 made to a retired employee, Mr. Preston, by a company dealing in liquor. Mr. Preston had served the company for over thirty years, rising to the position of a director before retiring in 1956. The company introduced a gratuity scheme in 1957, and a resolution was passed granting pension to Mr. Preston at the rate of Rs. 556 per month for ten years. The claim for deducting the pension was initially rejected by the ITO, citing lack of service agreement and pension rules. However, the AAC allowed the deduction, considering it as an amicable settlement liability. The Tribunal also upheld the allowance, distinguishing it from a Supreme Court case and emphasizing commercial expediency. The resolution passed by the board of directors clearly outlined the terms of the pension granted to Mr. Preston, emphasizing recognition of his past services and providing for payments to him and his dependents for a specified period. The Tribunal's decision to allow the deduction was based on the fact that the pension was not a purely voluntary payment but rather a benefit provided to an employee who had served the company faithfully and was expecting such a benefit. The Tribunal found similarities with another case where a similar benefit was extended to an employee who missed the gratuity scheme due to retirement timing. The High Court, in its analysis, considered the tests laid down by the Supreme Court in a previous case and emphasized the need to judge the matter by applying the test of commercial expediency. It noted that the pension payment was not excessive and was about 25% of Mr. Preston's salary at the time of resolution. The Court concluded that the payment was not purely voluntary but provided as a benefit to an employee with long and faithful service, aligning with commercial expediency. The Court found no compelling circumstances to differ from the Tribunal's conclusion and ruled in favor of the assessee, allowing the deduction of the pension payment in the year under consideration. In conclusion, the High Court answered the reference question in the affirmative, in favor of the assessee, and directed the revenue to pay the costs of the reference. The judgment highlights the importance of considering commercial expediency and past service recognition in determining the allowability of pension payments as deductions in income tax assessments.
|
