Law: Income Tax Act, 1922

Section: 10(2)(xv)

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 year 1955-56 - Assessee claimed deduction of amount paid to its munim on his retirement by way of gratuity under section 10(2)(xv) - This payment was made for first time and there was no scheme of same payment in future - Whether having regard to fact that it was not practice of firm to give gratuity to its employee and there was no evidence to show that munim expected it when he entered service or same was given as part of scheme to give gratuity to its employees in future, amount in question was not deductible - Held, yes FACTS In the assessment proceedings for the year 1955-56, the assessee-firm claimed a deduction of Rs. 21,000 on the ground that the amount was paid to its ex-munim J, as retirement gratuity. The ITO disallowed the deduction under section 10(2)(xv) holding that there was no evidence to show that the assessee used to pay such gratuity to its employees or that the payment was made in the future interest of the business. The AAC also rejected the assessee's claim and the order of the AAC was confirmed by Tribunal. On reference : HELD The assessee admitted that it was not the practice of the firm to give gratuities to its employees and that the payment of gratuity to J was that first instance of its kind. There was no evidence whatsoever to show that J expected to get a gratuity when he entered the service of the firm on a salary of Rs. 150 per month. There was also nothing to indicate that the gratuity was given to J as a part of any scheme of the assessee firm to give in future to all its employees gratuity as an incentive to them to give their best service to the firm and that thus, the amount was expended on the ground of commercial expediency. The burden of proving the circumstances for allowing a deduction, was clearly on the assessee. The assessee failed to do so. That being so, it was to be held that the assessee was not entitled to deduction of amount of gratuity. Note : The case was decided against the assessee. CASES REFERRED TO Gordon Woodrffe Leather Manufacturing Co.…

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