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TMI Blog1987 (3) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the Tribunal is right in law and fact in holding that 'no other element of personal enrichment or favour or extra-commercial considerations came into play' in the payment of pension to Mr. William Rae and is not the above finding wrong and unreasonable ? 3. Whether, on the facts and in the circumstances of the case, and in view of the dictum laid down in Seshasayee Bros.' case [1971] 82 ITR 442 (Ker), is not the payment of pension merely an ex gratia payment by the assessee-company in consideration of the past services of Mr. Rae to the company ?" Question No. 2 is not framed properly and, therefore, the same has been recast as follows : " Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e questions arise out of annexure-C order of the Tribunal. We shall state the law first. Expenditure incurred in connection with payment of pension, gratuities and other voluntary payments to employees are deductible provided it is established that the payments were made for sound commercial purposes and with the object of facilitating the carrying on of the business. The fact that a third party other than the assessee is also benefited by the expenditure would not make it an expenditure not deductible under section 37 of the Income-tax Act. It should, however, be established that the payment was made in pursuance of a scheme for payment of such amounts, or the payment was made as a matter of practice which affected the quantum of salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lliam Rae. As per the agreement, the assessee was bound to pay Mr. Rae an annual fee of 2,000 pounds which, however, was later reduced to 1,000 pounds. On going through this agreement, the assessing authority opined that in the absence of a scheme for pension to retired directors, the payment could be considered only as an ex gratia payment. It is not disputed, and for that matter it cannot be disputed, that there was no scheme or any practice creating any legal obligation on the assessee to pay any pension or such similar benefits to a managing director on his retirement, while Mr. William Rae was in service. After the retirement of Mr. William Rae, a supplementary pension scheme conferring certain retirement benefits was introduced. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent with Mr. William Rae is not of a long duration. It is only a short period. That goes to show that the assessee ordinarily might have has intention to give the benefit of pension to Mr. William Rae while in service itself even before retirement, that it was not possible to do it at that time and that, that omission was made good by this agreement. If we view the three documents, the two schemes and the agreement with Mr. William Rae together as a whole, at least one thing becomes clear that it was not a favour done to any particular individual and that it was in the background of a genuine desire to give pensionary benefits to most of its employees that this agreement was entered into. This agreement is only a step in furtherance of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business. We are, therefore., of the view that the assessing authority had rightly held that the pension paid to Mr. William Rae was not an allowable deduction under section 37. For the reasons stated above, we answer question No. 1 in the negative, i.e., against the assessee and in favour of the Revenue. The other questions do not warrant any answer in the light of the answer given to question No. 1. We direct the parties to bear their respective costs in these tax referred cases. A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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