1985 PLP (Trib (PTD)

(2) the transaction is properly entered into as a part of the assessee's legitimate commercial undertaking in order to facilitate the carrying on of its business. [Please see (1951) 20 I T R 1] These two tests have been applied in subsequent decisions by Indian Supreme Court as well as various High Court.

5. The case of Calcutta Landing & Shipping Co. Ltd. (supra) which has been cited at the Bar by Mr. I. N. P. the learned counsel for the appellant, also follows the aforesaid tests as laid down by Indian Supreme Court. However, the facts of this case are very important. From the perusal of the aforesaid case it appears that one of the employees of Calcutta Landing & Shipping Co., was killed by his employees while he was performing his duties. Although the deceased employee had not been in service even for a year the Board of Directors of Calcutta Landing & Shipping Co., decided to pay pension to the widow and the children of the deceased. The Company as per direction of the Board's resolutation paid Rs. 14,855, Rs.5,040 and Its. 4,590 during the assessment years 1957‑58 and 1959‑60, respectively. During aforesaid years the deduction was claimed regarding the amounts mentioned above. The Income‑tax Officer held that it was ex gratia payment. He, therefore, did not allow deduction. The learned Appellate Assistant Commissioner in appeal affirmed the order of the Income‑tax Officer. It was argued before him that the payment was, in the nature of an incentive for the other employees. However, the learned Appellate Assistant Commissioner did not agree with this contention because that was the only case of its kind. On further appeal, the Tribunal affirmed the order of the Appellate Assistant Commissioner. It was observed that the expenditure should be in the nature of commercial expediency in order to be allowable a deduction under section 10‑ (2) (xvi) of the Income‑tax Act, 1922. The company, however, was still aggrieved and the matter was referred to a Division Bench of Calcutta High' Court. Banerjee J. after reviewing the entire case law available came to the following conclusions: (1) That it was well‑settled that the expenditure expended wholly and exclusively for the purposes of such business includes expenditure voluntarily incurred for commercial expediency and in order directly to facilitate business. (2) That it was further settled that an, expenditure incurred in maintaining the efficiency and manpower from time to time utilized in a business is also expended wholly or exclusively laid out for such business. (3) that it was also equally settled that the employment of even a director is an expenditure of commercial expediency if it is based on his expert knowledge in the particular line of business. (4) that the expression "commercial expediency" means and includes are ,expenditure which a prudent man might insure for the purposes of business provided it is not entirely gratuitous and unconnected with the business".

6. The Bench also put a note of caution that the amount spent should not be 'out of generosity or special virtue of the assessee. Their Lordships of the Division Bench further warned about the spending of money on favorites of the assessee. However, under the facts and circumstances of that case their Lordships allowed the deduction. In this regard the following observation is very pertinent: "A payment made to employees in the expectation of creating impetus or encouraging them to put in selfless work for the employer is a payment made out of commercial consideration and or commercial expediency. To have a body of contended and loyal workers, ready to lay down their lives for the cause of the employer, is a blessing to every commercial concern. If a payment be made in such expectation, cannot but be regarded as an expenditure incurred wholly and exclusively for the purposes of business expediency." [Calcutta landing & Shipping Co. Ltd. page 11]

7. Now reverting to the facts of this case it appears from the submission of Mr. P... that the scheme of sending one of the employees of the appellant was introduced for the first time in assessment year 1975‑

76. In reply to a question Mr. P... stated at the Bar that neither there was any scheme for selecting such an employee nor there was any trade union of the employees to protect the interest of the employees. On further enquiries Mr. P failed to disclose the name of the employee who was sent by the appellant to perform the Haj. Mr. P...further admitted at the Bar that 'it was the management of the appellant who selected such employee.

8. In view of the facts which have emerged out from the replies the learned counsel for the appellant neither apprised us of the name of the employee nor his designation is communicated to us. On what criterion the person was sent to perform Haj has also not been disclosed to us. As such, we are not in a position to hold that the person sent to perform Haj was an employee of the appellant and not one of the directors. We are also not sure that if such person was an employee, he was selected on ‑considerations of business expediency and not on basis of favoritism or act of generosity of the appellant. Thus, under the facts and circumstances of this case, we are unable to persuade ourselves to accept the submission of Mr. P. . . , the learned counsel for the appellant. We find the appeal devoid of any merits.

9. However, before parting with this appeal let us point out that if any assessee complies with the requirement of law, as mentioned above, such type of expenditure incurred on sending the employees for performing Haj may be held to be an expenditure wholly and exclusively for the purposes of such business, profession or vocation within the meaning of section 10 (2) (xvi) of the Repealed Income‑tax. Needless to say that every case would revolve round its own facts and would be adjudicated upon accordingly.

10. In view of the discussion made above, the appeal has no force and is, therefore rejected. The order of the learned Appellate Assistant Commissioner is hereby affirmed. M. B. A. Appeal rejected.