Law:

Section:

Section 10(2)(xv) of the indian income-tax act, 1922 [corresponding to section 37(1) of the income-tax act, 1961]-Business expenditure-Assessee-company had gratuity scheme for employees and maintained gratuity reserve-As a result of company 'R' taking over its business, assessee served notices on employees terminating their employment and also stating that company R had offered employment to all employees with benefit of continuity of service in all respects including computation of gratuity-Assessee-company accordingly paid to company R certain sum being aggregate amount of gratuity which would have been payable to employees if they had all retired-Whether said payment of gratuity made to R allowable as a deduction-Held, on facts, no Facts The assessee-company, a wholly owned subsidiary of company R, had a gratuity scheme for its employees since August 1953, and every year it transferred certain amounts to the gratuity reserve. R took over the assessee's business with effect from 1-5-1959. Prior to handing over its business to R, the assessee served notices on 22-4-1959 on its employees terminating their employment on and from 30-4-1959 and informing them that R had offered them employment on and from 1-5-1959 and that if they accepted the employment with R, they were to be given the benefit of continuity of service. The notice also stated that any employee, who did not want to accept employment with R, was free to receive retirement gratuity on the normal scale. R also issued a circular stating that continuity of employment in respect of employees of the assessee, who took employment with R, was to operate in all respects, including the computation of gratuity. The board of directors of the assessee-company passed a resolution on 29-4-1959 and in pursuance thereof paid to company R a sum of Rs. 4,10,177 being the aggregate amount of gratuity which would have been payable to the staff of the assessee-company if they had all retired on 29-4-1959. For the assessment year 1960-61, the assessee claimed the said amount as deductible business expenses under section 10(2)(iv ). The ITO disallowed the claim holding that R alone would be entitled to claim in their…

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