Law:

Section:

I. Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment years 1952-53 to 1954-55 - Under Bombay Industrial Relations Act 1946, Industrial Court gave award directing to pay gratuity to employees on certain terms - In order to implement that award, assessee-company set apart a lumpsum amount, which included initial contribution and annual contribution - Contributions were paid to trust created for that purpose - Assessee's claim for deduction in respect of amount contributed was disallowed by ITO holding that liability on assessee to make payment of gratuity would arise only when employees retire or resign or die - Tribunal affirmed ITO's order - Whether having regard to relevant rules of Gratuity Fund Rules, amount contributed by assessee must be held to have irretrievably gone out of coffers of assessee-company which were never to return back to it - Held, yes - Whether, in such circumstances, initial contribution as well as yearly contribution made by assessee was to be regarded as business expenditure incurred wholly and exclusively for business purpose, and, therefore, deduction claimed by assessee was to be allowed under section 10(2)(xv) of 1922 Act - Held, yes FACTS The assessee was a public limited company owning a chain of textile mills in Bombay City. In an arbitration between the Bombay Millowners' Association and the employees in the textile industry under the Bombay Industrial Relations Act, 1946, the industrial court gave an award, whereby the demand on the part of the employees for gratuity was adjudicated upon and the gratuity directed to be paid on certain terms. In order to implement this award the assessee-company provided or set apart during the year 1951 certain amount for a gratuity fund. This amount included initial contributions as well as annual contributions for the year 1951. The initial contributions was calculated on the basis of gratuity to which the existing employees were entitled up to the beginning of 1951, by a reference to the number of years put in by each employee while the annual contribution was calculated by…

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