INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Disallowance of ex-gratia payment made by assessee to its employees - Allowability -

Revenue's case was that Tribunal was not justified in allowing ex gratia payment as a deductible expense. The ex gratia payment by its very nature of payment was a favour having no nexus with commercial consideration. Provisions of section 63 of the Multi-State Co-operative Societies Act, 2002 were misread by the Tribunal and thereby had come to the erroneous conclusion. Assessee submitted that ex gratia payment was made within the purview of section 63 of the Act and Tribunal had rightly considered the same. Held: Section 63 of the Act empowers the Board of Directors to approve payment of ex gratia amount to its employees. Assessee was extending incentives to employees for the preceding years and the subsequent years also and the same was accepted by revenue. Tribunal had also relied on the Judgment of this Court in the cases of CIT v. Maina Ore Transport (P.) Ltd. (2008) 175 Taxman 494 (Bom) : (2010) 324 ITR 100 (Bom) : 2010 TaxPub(DT) 0180 (Bom-HC) and Shahzada Nand & Sons v. CIT (1977) 108 ITR 358 (SC) : 1977 TaxPub(DT) 0892 (SC), wherein it was held that ex gratia payment made by employer to its employees was on account of commercial expediency and hence allowable. Practice of ex gratia payment was evident from the observations of the Tribunal and accordingly appeal was dismissed.

Relied:CIT v. Maina Ore Transport (P.) Ltd. (2008) 175 Taxman 494 (Bom) : (2010) 324 ITR 100 (Bom) : 2010 TaxPub(DT) 0180 (Bom-HC) and Shahzada Nand & Sons v. CIT (1977) 108 ITR 358 (SC) : 1977 TaxPub(DT) 0892 (SC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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