Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1962-63 - During relevant accounting year, assessee company took over business carried on by a firm including its employees - Aforesaid firm had a scheme in force of retiring its employees at age of 57½ years and paying them gratuity at time of retirement - Assessee-company also had a scheme of paying gratuity to its employees on retirement, but there was no fixed age of retirement for employees - As per terms of agreement of taking over business, assessee-company was to retire all its employees who had exceeded age of 57½ years and to pay them gratuity - Assessee-company did so and claimed amount paid as revenue expenditure - ITO taking a view that amount so paid was nothing but part of business consideration held that expenditure in question was capital in nature and not allowable as deduction - AAC as well as Tribunal, however, allowed assessee's claim - On instant reference, it was seen that Tribunal had recorded finding that there was an existing scheme for employees of assessee-company who were paid this amount by way of gratuity - It was also recorded that payment was made under circumstances as would ensure retention of remaining staff and contentment amongst them - Whether in aforesaid findings, order passed by Tribunal allowing assessee's claim was to be upheld - Held, yes FACTS The business carried on by 'V' firm was taken over by the assessee-company during the relevant assessment year. The assessee took over the plant, machinery and buildings and lands owned by the firm in relation to its cotton and cotton waste business at various places. The staff of 'V' firm also came over to the assessee. The 'V' firm had a scheme in force of retiring its employees at the age of 57½ and paying them gratuity at the time of retirement. The assessee had a scheme of paying gratuity to its employees when their services came to an end, but there was no fixed age of retirement for the employees of the assessee-company. It had thus employees who had exceeded the age of 57½ years. Under the agreement, the assessee was to retire all its employees who had exceeded the age…

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