LAKHAMICHAND MUCHHAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under section 66(1) of the Indian Income -tax Act at the instance of the assessee, Messrs. Lakhamichand Muchhal of Indore. The question stated for our opinion is :

(2.) THE assessee is a registered firm. In the assessment proceedings for the year 1955 -56 the claimed a deduction of Rs. 21,000 on the ground that the amount was paid to its ex -munim, one Shri Jagannathji, as gratuity at the time of his retirement. The Income -tax Officer disallowed the deduction 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. He relied on Gordon Woodroffe Leather . v. Commissioner of Income -tax. The Appellate Assistant Commissioner also rejected the assessees claim for deduction. Before him also it was admitted by the assessee that the payment of gratuity to Jagannath was the first instance of any gratuity paid to an employee by the assessee firm. The assessee that Jagannathji was paid this amount of gratuity as he used to look after the entire business when the partners of the firm were very young and inexperienced. In reply to a query made by the Appellate Assistant Commissioner, the assessee addressed a letter saying that the firm was started some forty years back and that some ten years after Jagannathji entered the service of the firm on a salary of Rs. 150 per month which was raised to Rs. 200 after a period of ten years and then again raised to Rs. 250 after five years and ultimately in Samvat 2008 Jagannathji was being paid a salary of Rs. 350 per month. In the letter it was also admitted by the assessee that there was no system of giving any gratuity, pension or provident fund to its employees on retirement. The Appellate Assistant Commissioner held that the case was fully covered by the decision of the Madras High Court in Gordon Woodroffe Leather . v. Commissioner of Income -tax. The Tribunal also found that and that it was for the first time in the history of the business that Jagannathji was paid a gratuity equivalent to his 60 months salary at the time of his retirement. On this finding the Tribunal held that the deduction could not be allowed under section 10(2)(xv) of the Act.

(3.) IN the present case, 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 Jagannathji was the first instance of its kind. There is no evidence whatsoever to show that Jagannathji expected to get a gratuity when he entered the service of the firm on a salary of Rs. 150 per month. There is also nothing to indicate that the gratuity was given to Jagannathji 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, as stated by the Supreme Court, was clearly on the assessee. The assessee has failed to do so. That being so, the question referred to us must be answered in the negative.