Expenditure incurred for commercial expediency and to maintain a loyal workforce falls within the scope of s. 10(2)(xv) of the Indian IT Act, allowing a portion of the claimed expenditure.

BANERJEE, J.

1. These three references under the Indian IT Act, 1922, were made in circumstances hereinafter stated.

2. The assessee, Calcutta Landing and Shipping Co. Ltd., is a public limited company acting as shipping agents, inter alia, in the Port of Calcutta. One A.I.D. Baptist joined the services of the assessee-company, on probation, on 1st Sept., 1954, and was confirmed as a senior assistant on 1st April, 1955. On June 3, 1955, the said Mr. Baptist was murdered in the company's yard, under circumstances tragic in nature, as appears from the following undisputed statement of fact made by the assessee-company (page 54 of the paper-book) :

"Towards the end of May, 1955, one of the launches of the company 'Celt' was found to require major repairs and it was, therefore, directed to be dry-docked at the company's yard at Salkia, Howrah. When this was done, according to the practice followed on the river, all the crew of the launch excepting the serang and the engine driver was discharged. On 3rd June, 1955, at about 7- 45 a.m. Mr. Baptist, along with the yard foreman, went to inspect the launch 'Celt' in order to assess the repairs required and to give the necessary instructions regarding the same. He then found that the discharged crew were still occupying the launch. When he directed them to vacate the launch, an altercation arose between him and the discharged crew in the course of which the latter assaulted Mr. Baptist and threw him overboard. As he lay prostrate on the ground, some of the crew hit him with crowbars, hammers, etc., as a result of which Mr. Baptist became unconscious and began to bleed profusely. He was removed to the P. G. Hospital in a precarious condition and he died at about 11-20 a.m. on the same day."

On 2nd Nov., 1956, the board of directors of the assessee-company passed a resolution sanctioning a pension to the widow of their deceased employee, A.I.D. Baptist, in the following language (page 6 of the paper-book) :

"Resolved that a pension be granted to Mrs. D. C. Baptist, the widow of the late Mr. A.I.D. Baptist, who was murdered in the company's yard on the 3rd June, 1955, in the following manner : From 1st June, 1955, to 31st Oct., 1956, @ Rs. 500 per month. From 1st Nov., 1956, to 31st Dec., 1957, @ Rs. 420 per month. From 1st Jan., 1958, to 31st Dec., 1959, @ Rs. 375 per month. For a further period of 10 years from 1st Jan., 1960, @ Rs. 325 per month. Further to this, the company will bear the cost of passages to England for Mrs. Baptist and seven children, also first class railway fare to Bombay for them."

The passage money paid to Mrs. Baptist and the children amounted to Rs. 8,580. Some more expenditure was incurred by the assessee in sending a wreath for and in repairing the grave of the said deceased employee. In accordance with the aforesaid resolution, the assessee- company incurred an expenditure of Rs. 14,855 for the asst. yr. 1957-58, an expenditure of Rs. 5,040 for the asst. yr. 1958-59 and a further expenditure of Rs. 4,590 for the asst. yr. 1959-60. The assessee-company claimed deduction of these amounts in the years in which they were incurred. The ITO disallowed the claims for all the three years on the ground that the amounts claimed appeared to be ex gratia payments and were not expenditure incurred or laid out or expended wholly and exclusively for the business and as such deductions could not be allowed under s. 10(2) (xv) of the Indian IT Act, 1922. The assessee-company appealed before the AAC for all the three years, who, in his turn, affirmed the order of the ITO on the following line of reasoning :

"...The company has got its own pension scheme for its employees. However, Mr. Baptist could not join the scheme as he had not completed the required number of years of service with the appellant. Hence, his wife was paid pension and also provided for passage.

3. The company's representatives were asked by me that there may be also cases of earlier years when the company