9911796707
TMI Blog1981 (8) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... item of expenditure in the assessee's assessment for the relevant assessment year 1963-64. On appeal, however, the AAC held that the gratuity paid to the deceased director's widow was an allowable item of its expenditure. This decision was confirmed by the Appellate Tribunal. The Tribunal found that the assessee had a gratuity scheme meant exclusively for the members of the staff working in its establishment. There was, however, an express provision in the assessee's articles of association, namely, article 72(d), under which the paid directors, in addition to their remuneration, were entitled to, and eligible for, provident fund and other benefits (other than bonus) on the same scale and in the same manner in which such benefits were en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gerial personnel. The presence of these paid directors in the board is explained by the fact that they are regarded as experts in their particular line of activity. It is this trend in the evolution of modern corporate management, which is, perhaps, described by economists as the managerial revolution. In effect, this trend blurs the clear-cut distinction which once existed between the capitalist, who manages the business, on the one hand, and the employees, who work under his management, on the other. Even under the law there is no reason why a director should not be regarded as an employee of this company under certain circumstances and for certain purposes. (See the well-known decisions in Catherine Lee v. Lee's Air Farming Ltd. [1961] A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of gratuity in a business can no longer be regarded as ex gratia, but must nowadays be accepted as one made on grounds of commercial expediency and even of commercial necessity. (Vide Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261 (SC). That decision dealt with gratuity paid to an employee. But, in our judgment, that principle applied to gratuity paid to a service director as well. We are conscious that quite different considerations would prevail where the directors are in a position to vote to themselves any gratuity, commission and benefits of that kind without regard to any business necessity or expediency. But service directors are a different breed. They are paid remuneration under the terms of the company's articles or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(d). The board's resolution in question relied on by the learned standing counsel reads as follows : " Approved the provision for payment to the legal heirs of Shri K.K. Raman of Rs. 35,000, being the gratuity due to Shri K.K. Raman in accordance with article 72 of the articles of association (before amendment) for the period during which he was a director of the company. The board further noted that the amount has been calculated as per the gratuity rules of the company which provides for payment of half month's salary for every completed year of service. " It is clear from the wording of the resolution that what the board did was, not to sanction the gratuity of Rs. 35,000 for the first time, but to approve and ratify the payment a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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