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TMI Blog1988 (9) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... t of its employees on account of gratuity and compensation. The learned ITO disallowed this expenditure observing as below: "During the course of examination, it was noticed that the assessee has debited Rs. 54,141 to the P L a/c on account of gratuity and compensation which is not approved. The assessee was asked as to why any when this gratuity was paid to the employees and it was replied that the gratuity was paid due to pressure from the staff of the death of one of the partners. As per provision of law, the gratuity is paid if the employee dies during the service or his services are terminated. But in the present case the facts are totally reverse. None of the employees died or was terminated. All the employees are still serving with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployees later left the firm after three months. It was also contended that it was a genuine business expenditure and the factum and the genuineness of the expenditure had not even been doubted by the ITO. The learned AAC found force in the aforesaid submissions and allowed the appeal. 4. At the hearing before us, the learned Departmental Representative repeated the line of arguments raised by the learned ITO and contended that gratuity and retirement compensation is payable only when the employment comes to an end either by the termination of services by the employer or resignation by the employee concerned. Reliance was placed on a judgment of Hon ble the Supreme Court in Shri Sajjan Mills Ltd. vs. CTR (1985) 49 CTR (SC) 193 : (1985) 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a very bad shape and that if something happened to him what would be the fate of employees, who would run the firm, and who would pay the gratuity? It was further stated that even earlier request had been made to the said Shri Gurandwayamal and other partners for payment of gratuity. The application goes on to state that all the employees has decided to ask the firm for payment of gratuity immediately because the employees were searching for job elsewhere and they considered their future to be in dark with the assessee. The application further stated that if the gratuity was not paid immediately they would take up the matter before the Hindustan Mercantile Association. In the last, it was stated that their resignation be accepted and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were accepted and their subsequent continuation with the firm was in pursuance of fresh contracts. But even if it be not so, and even it be as contended by the learned Departmental Representative that there was no legal obligation on the assessee to pay the aforesaid amounts even then the expenditure cannot be disallowed unless it is shown that it was not incurred wholly and exclusively for business purposes. On behalf of the assessee reliance was placed on CIT vs. Ram Krishan Mills (1974) 93 ITR 49 (Mad) in which it was observed that even if a certain payment infringed s. 348 of the Companies Act, the company will be entitled to deduction under s. 10(2) (xv) of the 1922 Act as in considering the allowability of an expenditure one cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the paying capacity of the employer and any other relevant considerations. If a prudent employer, conscious of new trend and ethos, voluntarily makes such payment in order to avoid such a dispute, and to buy industrial peace and contentment amongst workers, it could certainly be treated as having been made on the ground of commercial expediency. The solitary payment might will mark the beginning of a new practice (and every practice must necessarily orgainate at some point of time in an action taken for the first time) and in the very nature of things, it cannot be confined to an isolated case, for the employer would then render himself open to the charge of discrimination and lend himself in an industrial dispute. It would thus appear, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncept as also modern socialistic thought which, with its deeply rooted faith in social and economic democracy, regard the employees as much as the employer as co-sharers in the business. If an employer earns profits to which the employees have necessarily contributed by putting in their labour, there is no reason why the employer should not share a part of these profits with the employees." 6. The ratio of the aforesaid cases clearly indicates that in order to claim a business expenditure as deduction it is not at all necessary that the assessee must be under a legal obligation to incur the same. What has to be seen is whether the payment has been made in the interest of the assessee's business and unless the expenditure is unreasonable, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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