Sen, J. - (1.) This reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax, West Bengal-II, Calcutta, arises out of the income-tax assessment of Messrs. Chloride and Exide Batteries (Eastern) Pvt. Ltd., Calcutta, the assessee for the assessment year 1963-64, the relevant previous year having ended on the 31st August, 1962.
(2.) The facts found and/or admitted are, inter alia, as follows : One R. Knight was the manager of the Bombay branch of the assessee. Knight had originally joined a company known as the Chloride Electrical Storage Co. (India) Ltd., on the 26th July, 1926, and was employed there till 1st January, 1950, when the business of sale of the said company as also the services of Knight were taken over by the assessee. By a letter dated the 26th September, 1961, the assessee informed Knight of its intention to pay an amount of 4,000 (in rupees 53,333) on his retirement and thereafter passed a resolution to that effect on the 19th February, 1962. The rupee equivalent of 4,000, viz., Rs. 53,333 was paid to Knight on his retirement on the 31st August, 1962, during the relevant accounting year and in the assessee's account the payment was shown under the head " Salaries, wages and bonus amount ".
(3.) In its assessment the assessee claimed a deduction of the said sum of Rs. 53,333. The Income-tax Officer noted that there was no resolution authorising payment of gratuity to the entire staff of the assessee nor was it shown that the assessee had decided to pay gratuity to each of its senior staff. The Income-tax Officer also found that this payment to Knight was not made under any policy followed by the assessee. He also held that it had not been established that this payment of gratuity to Knight was made exclusively out of business consideration. Accordingly, he disallowed the claim.;