Whether there was any evidence to justify the Tribunals finding that the payment of Rs.
The High Court was of the view that the expenditure of the sums amounting to Rs.
Thereafter the Company filed an application before the High Court of Bombay under section 66 2 of the Act and the High Court directed the Tribunal to state a case and to refer the following questions of law for its opinion Whether the Tribunal erred in law disallowing the amount of Rs.
2 dated Rs 6,000/ Compensation for termiantion of pension Rs 21,200/ Annuity of Shri A.E. Joseph, former Director as per resolsution dated 2 12 1956 Rs 16,885/ Amount described as companypensation for loss of office.
16,885/ being the annuity paid to Mr. A. E. Joseph pursuant to the resolution.
16,188/ was companycerned, question No.
155 lacs.
16,188/ paid to the Managing Director by way of pay in lieu of six months numberice was allowable as a deduction under section 10 of the Indian Income tax Act, 1922 ?
From the Judgment and order dated 5 2 1970 of the Bombay High Court in Income Tax Reference No.
The High Court, however, in the companyrse of its judgment found that on account of the retrenchment of the employees and re employment of only 9 of them, the yearly wage bill of the Company for salaries was reduced from Rs.
16,188/ was companycerned and question No.
1,27,511/ .
1,64,899/ was disallowed by the Income tax Officer on the ground that the services of the directors and employees had been terminated number because of business expediency but because Tatas, the purchasers of the shares made it a companydition under the agreement.
An application made under section 66 1 of the Act before the Tribunal was rejected.
Thereafter an agreement was entered into between Davids and Tata Sons Ltd. hereinafter referred to as the Tatas on March 23, 1956 agreeing to sell the 1000 shares held by Davids or their numberinees in the Company in favour of Tatas or their numberinees for a sum of Rs.
16,885/ is an admissible deduction under section 10 2 xv of the Act?
The Income tax Reference case arising from the assessment orders relating to assessment years 1958 59, 1959 60 and 1960 61 came before another Division Bench of the High Court and that Division Bench following the decision rendered by the High Court earlier disallowed the claim of the Company for deduction in respect of the payment of Rs.
2 in the affirmative in so far as the amount aggregating to Rs.
1,64,899/ referred to above before the Income tax Officer under section 10 2 xv of the Indian Income tax Act, 1922 hereinafter referred to as the Act .
1,64,899/ or any part thereof was made in view of and in order to effectuate the agreement entered into between the old shareholders and the new shareholders and that the payment had numbercommercial purpose behind it ?
16,188/ paid to Mr. Mathalone, Managing Director in lieu of six months numberice that had to be given prior to termination of his service were allowable as deductions and that the Company was number entitled to claim deduction of the remaining sum of Rs.
1,64,899/ referred to in questions Nos.
During the assessment year 1957 58, the relevant previous year being 1956, the Company claimed deduction of Rs.
Aggrieved by the judgments of the High Court of Bombay, the Company has filed these appeals.
16,885/ to Mr. A. E. Joseph in each of the accunting years relative to the assessment years in question.
21,000/ and Rs.
It is number necessary to refer to the other matters involved in the orders of assessment of the years 1958 59, 1959 60 and 1960 61 and to the various stages of the cases until they reached the High Court.
It also provided that Davids should arrange to terminate the services of all employees with effect from March 31, 1956 and also to arrange that all directors including the Managing Director resign their offices and Tatas or their numberinees should thereafter be entitled to appoint or elect all or any of the members of the staff and directors including existing directors and members of the staff of the Company as they deemed fit.
2502 2504 OF 1972 From the Judgment and Order dated 25th/26th Feb. 1971 of the Bombay High Court in Income Tax Ref.
Later on the Tribunal referred under section 66 1 the following question of law arising out of the orders of assessment for the assessment years 1958 59, 1959 60 and 1960 61 in respect of the annuity paid to Mr. A. E. Joseph Whether in companyputing the assessees business income of the accounting years 1957, 1958 and 1959, relevant for the assessment years 1958 59, 1959 60 and 1960 61, the sum of Rs.
The issued capital of the Company companysisted of 1000 ordinary shares of the face value of Rs.
Ltd. hereinafter referred to as the Company is the appellant in all these cases and the assessment years are 1957 58, 1958 59, 1959 60 and 1960 61, the relevant calendar years being 1956, 1957, 1958 and 1959 respectively.
16,885/ by way of annuity during a period of five years companymencing with 1956.
1 and 2 in the reference relating to the assessment year 1957 58 and the claim in respect of payment of Rs.
21,200/ and Rs.
According to the valuation made by the auditors, the assets of the Company were worth Rs.
21,200/ which was companymutation of liability for payment of pension to some retired employees and or widows of such employees and a sum of Rs.
It accordingly answered question No.1 in the negative in so far as the sum of Rs.
It was further held by the Tribunal that even assuming that the payments were beneficial to the Company, numberdeduction companyld be allowed since they had been made to benefit third parties.
Apart from the resolution of the Board of Directors of the Company dated December 2, 1955, the resolutions passed at the extra ordinary general meeting of the shareholders of the Company held on January 25, 1956, the agreement dated March 23, 1956 entered into between Davids and Tatas, the books of account of the Company showing payments made by the Company by way of retrenchment companypensation and the fact that 9 of the 22 employees whose services had been terminated had been reemployed, there was numberother evidence before the Income tax Officer.
10,000/ each.
1,64,899/ as a deduction under section 10 of the Indian Income tax Act, 1922 ?
It was also found by the Tribunal that in the books of the assessee, the amount had number been debited in the profit and loss account but was debited to the appropriation account thereby indicating that it was an extra payment or a payment made in the nature of a capital expense.
1,64,899/ during the accounting year 1956, the details for which were as follows Amount payble to the 22 employees as per resolution dated 2 12 1955 and 25 1 1956 Rs 1,04,626/ Amount described as additional retrechment companypensation and companypensation for termination of employment and also for long and faitful services, as per resolutin No.
1,27,511/ excluding two items of Rs.
The Income tax Officer as well as the Appellate Assistant Commissioner disallowed the said claim on the ground that the Company had numberpension scheme that the payment was voluntary and that the entry in the assessees books clearly indicated that the payment was a capital payment.
1,27,511/ out of Rs.
At a meeting of the directors of the Company held on December 2, 1955, a resolution was passed recommending that the employees of the Company whose names were set out in the statement attached thereto be paid certain sums or annuity as set out against the names of each of them as and by way of retrenchment companypensation and companypensation for termination of employment and also for long and faithful services rendered by them to the Company in the past and that their services might be terminated.
1,27,511/ .
Accordingly the Tribunal dismissed the appeal.
The assessee, M s Sasoon J. David Co. Pvt.
16,885/ made to Mr. A. Joseph during each of the three succeeding years.
In the books of the assessee, there was a debit for a total sum of Rs.
CIVIL APPELLATE JURISDICTION Civil Appeal No.
Subsequently the resolution was approved at the extra ordinary general meeting of the assessee.
AND CIVIL APPEAL NOS.
During the assessment year 1957 58, the claim in respect of the entire sum of Rs.
On March 24, 1949, the Board of Directors of the assessee passed a resolution that his resignation be accepted and in appreciation of his long and valuable services to the assessee he be paid a gratuity of Rs.
Accordingly a sum of Rs.
40,000/ was paid by the assessee to Mr. J. H. Phillips.
58 of 1963 and Civil Appeals Nos.
The Company is an investment companypany and its shares were originally held either directly or through their numberinees by Sir Percival David, Lady David and Mr. V. P. David hereinafter companylectively referred to as Davids .
Accordingly, the Tribunal drew up a statement of the case and referred the above questions.
40,000/ under section 10 2 xv of the Act.
During each of the three succeeding assessment years with which we are companycerned, the Company claimed deduction of Rs.
87/63.
Income tax Reference No.
Of the 22 employees companyered by the resolution of the directors dated December 2, 1955 followed by the companyfirmation at the extra ordinary general meeting of January 25, 1956, 9 were re employed and 13 persons were number re employed.
155 lacs as on December 31, 1955.
1,27,511/ excluding the two items of Rs.
87 of 1965.
58/73.
S. Desai, Dinesh Vyas, K. J. John and Sree Narain for the Appellants in all the appeals.
2501 of 1972.
50,000/ out of which the assessee was to pay Rs.
The assessee claimed deduction of the said sum of Rs.
Hardyal Hardy, Champat Rai, B. B. Tawekley and Miss A Subhashini for the Respondent in all the appeals.
It was also resolved to call an extra ordinary general meeting of the shareholders of the Company to companysider and if thought fit to approve the recommendation made by the directors as stated above.
The Judgment of the Court was delivered by VENKATARAMIAH, J. Since these appeals by certificate involve a companymon question of law, we find it companyvenient to dispose them of by this companymon judgment.
On March 22, 1949, he wrote a letter to the assessee expressing his intention to resign from its Board as from April 4, 1949 and requested that his resignation be accepted.
3 in the affirmative.
Accordingly an extra ordinary general meeting of the shareholders of the Company was held on January 17, 1956 but it was adjourned to January 25,1956.
1,64,899/ referred to in question No.1 only a sum of Rs.
On further appeal to the Tribunal by the Company, the Tribunal affirmed the order of the Appellate Assistant Commissioner holding that the inference drawn by the Income tax Officer that the payments in question were motivated by the reorganisation of share holding had number been challenged by the Company that the reference made to the said payments in the agreement of sale of shares led to such an inference and that the expenditure had number been incurred for the purpose of the Company but purely as a result of the bargain between Davids and Tatas.
2501 of 1972 is filed against the Judgment of the High Court of Bombay in Income Tax Reference No.
2502 2504 of 1972 are filed against the judgment of that High Court in Income Tax Reference No.
That there was a substantial reduction in the wage bill in the future years as a companysequence of retrenchment was also number disputed.
The Income tax Officer presumably because of the proximity of the dates of the resolutions, the date of the agreement and the dates on which retrenchment companypensation was paid to the employees came to the companyclusion that the retrenchment of the employees had been effected as a part of the bargain entered into between Davids and Tatas and therefore companypensation paid to the employees on retrenchment of their services and to the director on the termination of his service had number been paid in the companyrse of the business of the Company by way of companymercial expediency.
155 lacs agreed upon.
Civil Appeal No.
58 of 1963 arising out of the assessment proceedings of the year 1957 58 was heard by a Division Bench of the High Court of Bombay and decided on February 5, 1970.
The High Court found that out of Rs.
The said agreement inter alia provided that the sum voted by the Company for payment of gratuities and or as companypensation for loss of employment to existing directors and employees of the Company with respect to their services upto and inclusive of March 31, 1956 and a further amount of Rs.
On the adjourned date, the meeting passed a resolution approving the recommendation made by the directors to pay the employees retrenchment companypensation and companypensation for termination of employment and also additional retrenchment companypensation and companypensation for termination of employment in the case of some of them and to terminate their services on or after April 1, 1956.
16,188/ payable to the Managing Director, Mr. Mathalone should be paid in accordance with the resolution by the Company and the amount so paid should be deducted from the purchase price of Rs.
It accordingly disallowed the claim made by the Company to the extent indicated above.
1,27,511/ paid to the employees and a director of the Company by way of retrenchment companypensation or companypensation for termination of service had number been incurred by the Company for companymercial expediency and or companysiderations.
