COMMISSIONER OF INCOME TAX Vs. HERBERTSONS PRIVATE LIMITED

JUDGEMENT

(1.) THIS is a reference under s. 66(1) of the Indian I.T. Act, 1922, at the instance of the Commissioner, and the following question has been referred to us for our opinion :

(2.) WE are concerned in this reference with the assessment year 1961 -62 for which the accounting year is the year ending March 31, 1961. The assessee is a company which deals in liquor and has also income from agency commission and allowance. The controversy in the present reference is about the allowability of pension paid to one R. Preston, who was an employee of the company for more than thirty years. He commenced the employment with the company as an assistant and ultimately rose to the position of a director. He retired in 1956, but his services were continued to be retained till the end of September, 1959. At the time of retirement his salary amounted to about Rs. 2,500 per month. He had no service agreement with the company. The company had also no regular scheme for payment of pension to its retired employees; but a scheme for payment of gratuity to retired employers although it was found that he had not made any additional approach in the matter. On September 26, 1957, the board of directors of the assessee -company passed a resolution granting pension to Preston at the rate of Rs. 556 per month for a period of ten years. We shall quote the relevant portion of the said resolution a little later on. ADAG The claim for deducting the pension in computing the company's income was first made before the ITO at the time of reassessment for 1960 -61. The ITO considered the merits of the claim but rejected it on several grounds. He emphasised the fact that Mr. Preston did not have any service agreement with the assessee -company nor did the company have any rules and regulations for the granting of pension. He had asked the representative of the assessee to file a copy of the resolution of the board of directors of the company, which also was not done. For the next year also the ITO did not allow the amount of pension to be deducted in the assessment of the assessee -company.

(3.) THE department carried the matter in second appeal to the Income -tax Tribunal. The Tribunal decided in favour of the department for 1960 -61, but in this reference we are not concerned with assessment year. Before the Tribunal the department relied very strongly on Gordon Woodroffe Leather Manufacturing Co. v. CIT : [1962]44ITR551(SC) . The Tribunal, however, distinguished the facts of the case and held that the assessee was entitled to allowance in the amount of Rs. 6,672 during the assessment year in question.