1972 (10) TMI 21

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..... he first two cases. This deduction was allowed by the Agricultural Income-tax Officer. But, later on, he chose to revise the assessment and disallowed the deduction claimed. For the assessment year 1967-68, even in the original assessment, the Agricultural Income-tax Officer did not allow the deduction claimed towards the gratuity amount paid. The reason given by the Income-tax Officer for not allowing the deduction of the amount paid as gratuity to a retired employee is that those payments had no nexus with the future conduct of the business of the assessee, and that, therefore, it could not be claimed as a deduction under section 5(e) of the Madras Agricultural Income-tax Act. This disallowance was upheld by the appellate authority. There .....

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..... eld that the proper test to apply in cases of this kind is to see whether the payment was made as a matter of practice which affected the quantum of salary or whether there was an expectation by the employees of getting a gratuity or whether the sum of money was paid on the ground of commercial expediency or whether the payment had been in order indirectly to facilitate the carrying on of the business. While holding that the payment of gratuity in that case was not an allowable deduction under section 10(2)(xv), it has been observed that if the payment is made in pursuance of the general practice adopted by the assessee, then the payment would an allowable deduction. The learned counsel for the revenue places reliance on the decision of t .....

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..... mployees of being paid a gratuity. Though normally a gratuity is not all expenditure for the purpose of business, if the payment, though made after the employee has ceased his connection with the business, has been made in pursuance of a general practice adopted by the assessee, then it can be inferred that the employees have joined the service in the expectation of being paid a gratuity. In such a case, the expectation would act as an inducement for the employees to hold on to the service till retirement and this will facilitate the carrying on by the employer of the business without any break or interruption. Therefore, if once the general practice of paying gratuity in respect of retired employees is established, then it has got a suffic .....

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