LexGORDON WOODROFFEE LEATHER MANUFACTURING CO. versus THE COMMISSIONER OF INCOME-TAX, MADRAS
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
. ., ~.C.R. SUPREME COURT REPORTS GORDON WOODROFFEE LEATHER MANUFACTURING CO. v. 211 THE COMMISSIONER OF INCOME-TAX, MADRAS (B. P. SINHA, c. J., J. L. KAPUR, ~L HmAYATULLAH, J.C. SHAH and J.·R. MUDHOLKAR, ,JJ.) Incom.~-Ta.x-Gratuity-.Payment of nof. in pur.s1!'ance nf any scluime but 1;ol1tntaril.11 .for lonq and varu.rJblr. servicPs- Whelher detlnclion can be claimed-Income-Ta.~ Act, 1922 ( 11of1.922), 8. 10 (2) (xv). The company accepted the resignation of one of its directors and in appreciation of his long valnable services to the com- pany, paict him a gratuity of Rs. 40,nOO/-. Tr.is amount was claimed as a·: deduction under s.10(2) (xv) of the Income.tax Act which was disallowed by the Income-tax Officer, on the ground that the appellant company had no pension scheme,; the payment was voluntary and that the entry in the assessec s boob clearly indicated it to be a capital payment. Held,' that the payment does not fall within the provi- sions of'· I0(2)(xv) of the Act. The amount was paid not in pursuance· of any scheme of payment of gratuities nor was it an amount which the reripien t expected to be p<!id for long an<l faithful service but it Yla<; for a voluntary payment not with the object of facilitating carrying on the business o~ the appellant compan~1 or as a matter of commercial exped1ency but in recog-nition of long and faithful service. There Was no practice in the appellant company to pay such amounts to and did not affect the quantum of salary of the recipient. To claim i' deduction unner s.10(2l(xv) of the Act the proper test to apply is, was that the payment made as a matter of practice which affected the quantum of salary or was there art expectation by the employee of getting a gratuity or was the sum of money expended on the ground of commercial expediency and in order indirectly to facilirate the carrying on of the busine~s . .!. P. Hancok v. General Raversirma,r11 & Inv<Stmenf. Oo. L'd. (1918) 7 T. C. 358 and .T, W. Smith v. The Incorpornted Council of L"w Re.porting .fnr England and Wales, (!914) 6 T. C. 477, REFERRED TO. CIVIL APPELLATE Jun1snrcTION: Civil Appeal No. 62 of 1961. J.!JtJi December 20 1961 (}.,.;,. W OD<ho.ff11 1-MIMr M anufaclurint Co., v, n. C..missto.., •f [PUolfU-IOX I M.aros li'.;tN J 212 SUPREME OOURT REPORTS [1962] SUPP. Appeal by special leave from tho judgment and order dated December 20, 1956, of the Madras High Court in Case Referred No. 85 of 1953, A. V. Viswanatha Sastri, R. Ganapatky Iyer and G. Gopalakri8hnan for the appellant. ' K. N. Rajagopal,a 81J81ri and P.D. Me'OO'fl for tho rEll!pondent. 1961. December 20. The Judgment of the Court was delivered by KAPUR, J.-This appeal by special leave is directed against the judgment and order of the High Court of Judicature at Madras. The appel- lant is the as&e'l8ee and the respondent is the Commiseioner of Incom&-tax and the question raised is as to appli<)&bility of a. 10(2)(xv) of the Indian Income-tax Aot to a gratuity paid by the appellant to ono of its offioere on hie retir<>ment from B!'rvioo. The appeal relates to the &88e88DJ~nt year HJ50·51. M/s. Gordon Woodroffee & Co. (Madl'llB) Ltd., was incorporated as a private limited com- pany in 1922 and became the Managing Agent of a. public limited company M/e. Gordon Woodroffee Leather Manufacturing Company Ltd., which is the &BB!'SBOO. One J. H. Philips was €mployed in the Managing Agent Company from 1922 to 1935 and from 1935 he became an employee of the appellant company and became its Dirertor from 1940. On March 22, 1949, he wrote a letter to the appellant company exprcasing bis intention to resign from the Board of the Company ae from April 4, 1949, upon his retirement from the employment of the company and requested that his resignation be accepted. On March 24, 1949, the Board of Directors of the appellant Company p&Blled a resolution that his resignation be accepted and in appreciation of his long and valuable services to Company hebe paid a gratuity of Rs. 50,000/- out 2 S.C.R. SUPREME COURT REPORTS 213 of which the appellant Company was to pay Rs. 40,000/- and the Managing Agent Company the balance of Rs. 10,000/-. On April 4, 1949, this resolution of the Board of Directors was confirmed. On the saine date a resolution to the same effect was passed at an Extraordinary General Meeting of the Company and before the end of its account- ing year
Excerpt shown. Read the full judgment & AI analysis in Lexace.