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Judgment
Balasubrahmanyan, J.—The question in this case is about a deduction granted by the Income Tax Appellate Tribunal for an item of
expenditure in the computation of business profits.
Normally, questions of this kind, although briefly worded, m would give us an idea of the nature of the controversy. Not so in this case. The
question does not tell us what it is about. All it asks us to decide is :
Whether on the facts and the circumstances of the case, the sum of Rs. 63,880 was a proper deduction ?
We have, therefore, to turn to the order of the Tribunal and advert to their findings first.
The assessee in this case is a printing press at Sivakasi. The press has a labour force of 77 workemen. In 1971 the assessee brought about an
agreement with these people. Under the terms of the agreement, all the employees working in the press were to be treated as having been
discharged on March 31, 1971, in consideration of the payment made to them calculated at the rate of 15 days'' wages for every completed year
of service. However (this was also an important term in the agreement), all the 77 workers, although deemed to have been discharged on March
31, 1971 must, nevertheless, be treated as having been re-employed on the very next day, on fresh terms of employment. One of the service
conditions governing their fresh employment was that they had no right to demand gratuity or other benefit should they be discharged or retrenched
within 5 years from April 1, 1971. The workers obviously agreed to these terms and received their payments under the agreement. The money
disbursed to them in this manner amounted to Rs. 63,880. The assessee claimed this outgoing as an item of business expenditure in the
computation of its taxable income.
The order of the Tribunal shows that they did not known what to make of this agreement under which the assessee incurred this expenditure.
The agreement did not conform to any single pattern. It was not closure of business. It was not discharge of workmen. It was not continuity of
service. The payment made under the agreement was not gratuity. It was not retrenchment compensation. It was not bonus. As the saying goes, it
was neither fish, nor flesh, not fowl, nor good red herring.
Although the Tribunal were hard put to it to classify the expenditure under some familiar category, they were, however, not in any doubt as to
the nature and purpose of the outgoing. They observed that by this payment, the assessee ""secured certain advantages for its business by altering
the service conditions of the employees"" and to secure certain advantages with regard to future payment of salaries. The Tribunal also thought that
the payment would certainly enthuse the employees to proper work and operate as an incentive. The Tribunal then quoted the well-known dictum
of Viscount Cave in Altheton''s case [1925] 10 TC 155 and held that the assessee''s claim to deduct the expenditure was allowable as ""a payment
on account of commercial expediency for the purpose of business"".
In this reference at the instance of the Income Tax Department, the wisdom of the Tribunal''s decision is questioned. Mr. Jayaram, the
Department''s standing counsel, wondered whether there was any element of commercial expediency in the payment of Rs. 63,880 which the
assessee distributed to its workers. Learned counsel said that it was quite odd that a considerable sum should have been given away, just like that,
for practically nothing on the basis of a mere paper retrenchment and a make-believe re-employment.
We may say that we were also somewhat struck by the strangeness of the process. But, then, we would not forget that it was all part of a
collective bargaining between the parties. And what it more, as the Tribunal had pointed out, the underlying purpose of the assessee in entering into
this arrangement was to secure favourable conditions of employment, more favourable to the assessee before, while at the same time offering an
incentive to the workers to turn out much better work. We cannot reject these aspects of the expenditure out of hand, merely because the means
adopted for achieving the end appears to be circuitous or artificial. In the world of business, there is no single way of bringing about desirable
results. Some of them may be novel. Some of them may be even eccentric. But we cannot disallow business expenditure of which we disapprove
either because we have not seen the like of it before, or because it offends our sense of propriety. The one and only test for allowance of business
expenditure which the taxing statute has laid down is to see if it has been incurred wholly and exclusively for the purpose of the assessee''s
business. All else is beside the point. In the language of Viscount Cave, expenditure is allowable if it is dictated by considerations of commercial
expediency. They very expression ""expediency"" indicates that it will vary according to the exigencies of each situation as it arises. Provided there is
no non-business motivation, fairly anything that furthers the business must be accepted as a business purpose, and any expenditure which is
intended to subserve any such purpose must deducted as business expenditure.
Mr. Jayaraman said that the Tribunal cannot support their determination by a mere citation of the Atherton case [1925] 10 TC 155, or by an
interaction of the stock phrase ""commercial expediency"". We agree with learned counsel that Lord Cave''s dictum should not be reduced to a mere
cliche, but there must, in every case, be an inquiry into the basic commercial purpose of the expenditure claimed. However, ""commercial
expediency"" (like another fine phrase in the same judgment) has become so much a part of the common speech of Income Tax that we might very
well read all the implications which Viscount Cave had given to that expression, whenever someone introduces the phrase in serious discussion. All
the same, we may point out that in this case, the Tribunal did not stop short with citing Atherton''s case [1925] 10 TC 155 In right earnest, they
also went into the nature and purpose of the expenditure from more than one angle. We must, therefore, uphold their decision as proper and valid.
Mr. Jayaraman then urged that the Tribunal, in any event, ought to have disallowed the expenditure of Rs. 63,880 as capital expenditure. He
said that this conclusion fairly flowed from the Tribunal''s own finding that the payment made by the assessee under the agreement was intended to
bring about ""enduring benefit"" to the assessee''s business by altering the conditions of employment of the workers entirely to the advantage of the
assessee. Learned counsel added that although this aspect of the expenditure was not adverted to by the Tribunal it was but one fact of the
question of law already before us. We, however, decline to entertain this contention considering that it had not been mooted, let alone considered
in earlier stages of the proceedings. A question of law can be considered by this court only where it arises out of the Tribunal''s appellate order.
And a question can be said to arise only where it is raised and decided by the Tribunal or where it is raised before the Tribunal, whether decided
or not, or where it is decided by the Tribunal, whether raised or not. In this case, the point put forward by Mr. Jayaraman was neither raised
before the Tribunal nor decided by them.
In the result, we answer the reference in favour of the assessee and against the Department. The Department shall pay the costs of the
assessee. Counsel''s fee Rs. 500.