The Judgment of the Court was delivered by

Banerjee, J.:— These three references under the Indian Income-tax 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 September 1, 1954, and was confirmed as a senior assistant on April 1, 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.”

3. On November 2, 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 October, 1956, @ Rs. 500 per month.

From 1st November, 1956, to 31st December, 1957, @ Rs. 420 per month.

From 1st January, 1958, to 31st December, 1959, @ Rs. 375 per month.

For a further period of 10 years from 1st January, 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.”

4. 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 assessment year 1957-58, an expenditure of Rs. 5,040 for the assessment year 1958-59 and a further expenditure of Rs. 4,590 for the assessment year 1959-60. The assessee-company claimed deduction of these amounts in the years in which they were incurred.

5. The Income-tax Officer 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 section 10(2)(xv) of the Indian Income-tax Act, 1922.

6. The assessee-company appealed before the Appellate Assistant Commissioner for all the three years, who, in his turn, affirmed the order of the Income-tax Officer 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.

The company's representatives were asked by me that there may be also cases of earlier years when the company's employees themselves left the services of the company before they could be eligible to take advantage of the pension scheme or any other schemes. The company has informed me that they could not trace the payment of a similar nature made to any other employee of the company, who might have been murdered or injured during the performance of his duties or left the service of the company voluntarily. Thus, the present payment which is an ex gratia payment is a solitary payment made to an employee. This therefore cannot be considered as a payment which can inspire an incentive amongst the employees. I am therefore of the opinion that this ex gratia payment, both the pension and passage expenses, cannot be considered as wholly and exclusively laid out for the purpose of the appellant's business.”

7. As against the aforesaid order, the assessee-company appealed before the Income-tax Appellate Tribunal. The Tribunal also affirmed the order made by the Appellate Assistant Commissioner in the following language:

“…. All that has been urged before us is based purely on theoretical assumptions. It is a well-established principle of law that expenses incurred which may not even be found to have a direct bearing on the business, would still be allowable if the same had been incurred on grounds of commercial expediency and such expediency could only be gathered from the circumstances prevailing in each case. In the instant case, the expediency, which is said to be commercial in nature by the learned counsel for the assessee, is to create incentives in its employees to work efficiently. Apart from the fact that such a theory is farfetched, the fact itself clearly indicates that there was no such intention in this payment inasmuch as we do not find any such resolution having been adopted by the company to vindicate its intentions. All that has been done is that for a particular employee who died on duty, his family has been given this payment so that they may not become destitutes. This action on behalf of the company is indeed commendable but does not warrant these expenses being allowed as business expenses.”

8. Being aggrieved by the order of the Tribunal the assessee-company asked for a reference on the point as to whether the pension and the other expenses incurred by it would come under section 10(2)(xv) of the Indian Income-tax Act. The Tribunal refused to refer any such question for consideration of this court. Thereupon, the assessee-company moved this court and obtained an order calling upon the Tribunal to make a statement of case on the following questions of law:

“1. Whether, on the facts and in the circumstances of the case, the sum of Rs. 14,855 spent by the assessee partly by way of pension to Mrs. Baptist and partly by way of passage for Mrs. Baptist and her children to the United Kingdom and for funeral expenses are expenses laid out or expended wholly and exclusively for the purpose of the assessee's business and as such allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922?

2. Whether, on the facts and in the circumstances of the case, the sum of Rs. 5,040 spent by the assessee by way of pension paid to Mrs. Baptist is an expense laid out or expended wholly and exclusively for the purpose of the assessee's business and as such allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922?

3. Whether, on the facts and in the circumstances of the case, the sum of Rs. 4,590 spent by the assessee by way of pension paid to Mrs. Baptist is an expense laid out or expended wholly and exclusively for the purpose of the assessee's business and as such allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922?”

9. In order to answer the questions referred to above, it is necessary for us to quote the relevant portion of section 10 of the Indian Income-tax Act, 1922, which reads as follows:

“10.(1) The tax shall be payable by the assessee under the head ‘profits and gains of business, profession or vocation’ in respect of the profits or gains in business, profession or vocation carried on by him.

(2) Such profits or gains shall be computed after making the following allowances, namely:…

(xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.”

10. The English Income Tax Act also contains a provision almost in pari materia with the section in the Indian Act. That section came up for consideration in the case of Atherton v. British Insulated & Helsby Cables Ltd. 1925 10 Tax Cas. 155. in which the respondent company claimed as a deduction, in computing its profits for income-tax purposes, a lump sum of £31,784, which it had contributed irrevocably as a nucleus of a pension fund established by a trust deed for the benefit of its clerical and technical salaried staff, that being the sum actuarially ascertained to be necessary to enable the past years of service of the then existing staff to rank for pension. On a dispute being raised as to whether the respondent-company was entitled to a deduction of the above sum for income-tax purposes, Viscount Cave L.C observed (at page 191):

“It was made clear in the above cited cases of Usher's Wiltshire Brewery Ltd. v. Bruce 1914 6 Tax Cas. 399. and Smith v. Incorporated Council of Law Reporting 1914 6 Tax Cas. 477. that a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade: and it appears to me that the findings of the Commissioners in the present case bring the payment in question within that description.”

11. The above principle appears to have been accepted in Indian decisions and I need refer to several of them which were cited from the Bar. In the case of Commissioner of Income-tax v. Chandulal Keshavlal & Co. 38 I.T.R 601; [1960] 3 S.C.R 38., the assessee, a firm, was the managing agent of a company. In accordance with the managing agency agreement, the commission for the accounting year 1950 was a sum of Rs. 3,09,114, but at the oral request of the board of directors of the managed company, the assessee agreed to accept a sum of rupees one lakh only as its commission. The Appellate Tribunal found: (i) that the financial position of the managed company was rather unsatisfactory; (ii) that the assessee had been remitting a part or whole of its commission in the past whenever profits of the managed company were unsatisfactory; (iii) that the waiver was neither made out of bounty nor mala fide; and (iv) that the business of the assessee was so linked up with the managed company that if the latter was put on a sounder position, the assessee would get a larger commission in the future. The Tribunal further held that the part of the commission remitted by the assessee was given up for reasons of commercial expediency and was business expenditure allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922. Dissatisfied with the findings of the Tribunal, the Commissioner of Income-tax appealed before the Bombay High Court and lost before that court. On further appeal before the Supreme Court, Kapur J. observed (pages 610-11):

“In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee, it does not matter that the payment may inure to the benefit of a third party: Usher's Wiltshire Brewery Ltd. v. Bruce. Another test is whether the transaction is properly entered into as a part of the assessee's legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby (Eastern Investments Ltd v. Commissioner Of Income Tax, West Bengal). But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee. In the present case the finding is that it was laid out for the purpose of the assessee's business and there is evidence to support this finding.”

12. His Lordship then referred to the observations of Viscount Cave L.C in Atherton v. British Insulated & Helsby Cables Ltd. and further observed:

“Thus, in cases like the present one, in order to justify deduction the sum must be given up for reasons of commercial expediency; it may be voluntary, but so long as it is incurred for the assessee's benefit, the deduction would be claimable.

The Income-tax Appellate Tribunal has found in favour of the managing agent that the amount was expended for reasons of commercial expediency… That finding is one of fact. On that finding the Income-tax Appellate Tribunal rightly came to the conclusion that it was a deductible expense under section 10(2)(xv).”

13. The same view was expressed by the Supreme Court also in the case of Commissioner of Income-tax v. Royal Calcutta Turf Club. In that case, the assessee, Royal Calcutta Turf Club, was an association of persons whose business was to hold race meetings on a commercial basis. The turf club itself did not own any horse or employ jockeys. As it was of opinion that there was a risk of jockeys becoming unavailable and as such unavailability would seriously affect its business, the turf club established a school for the training of Indian boys as jockeys. During a particular year, the turf club spent an enormous sum on the running of the school and claimed that amount as a deduction under section 10(2)(xv) of the Indian Income-tax Act. The question before the Supreme Court was whether such an expenditure was wholly or exclusively laid out for the purposes of the assessee's business. In that context, Kapur J. was pleased to observe:

“The question as to whether the expenses of running the school for jockeys is deductible has to be decided taking into consideration the circumstances of this case. The business of the respondent was to run race meetings on a commercial scale for which it is necessary to have races of as high an order as possible. For the popularity of the races run by the respondent and to make its business profitable, it was necessary that there were jockeys of requisite skill and experience in sufficient numbers who would be available to the owners and trainers because without such efficient jockeys the running of race meetings would not be commercially profitable. It was for this purpose that the respondent started the school for training Indian jockeys. If there were not sufficient number of efficient Indian jockeys to ride horses, its interest would have suffered, and it might have had to abandon its business if it did not take steps to make jockeys of the necessary calibre available. Therefore, any expenditure which was incurred for preventing the extinction of the respondent's business would, in our opinion, be expenditure wholly and exclusively laid out for the purpose of the business of the assessee and would be an allowable deduction.”

14. In this case also, his Lordship referred to the view expressed by Viscount Cave L.C (hereinbefore quoted) with approval.

15. The third case on the point, which we need consider, is the case of Commissioner of Income-tax v. Chari and Chart Ltd. In that case, the assessee, a private company, carried on business in hides, skins, minerals, tobacco and other commodities, with a turnover not very large, and also acted as the managing agent of three other companies. Three persons of whom two, T.M Ayyadurai and T.M Rangachari, were brothers were directors of the company, receiving a monthly remuneration for attending to the business of the company. In 1951, the assessee was appointed by the Central Government as its agent for tobacco trade. On the very next day, one of the directors, T.M Ayyadurai, was placed in special charge of the agency business in tobacco and the assessee-company agreed to pay to him 30 per cent, of the net profits, under the agency contract, as his remuneration. In the accounting year ending with March 31, 1952, the assessee-company earned a large sum as commission under the said contract. After providing for expenses, a sum of Rs. 29,094, being 30 per cent, of the balance, was paid to the director placed in special charge of the agency. The Income-tax Officer allowed the remuneration only to the extent of 10 per cent, of the balance-on two grounds, namely, that the person who had been placed in special charge was a brother of one of the directors and that, as a director, he was bound to attend to all the activities of the assessee-company including the agency contract. Appeals against the order to the Appellate Assistant Commissioner and to the Tribunal challenging the disallowance of part of the commission were unsuccessful, but the assessee became successful before the High Court. Thereupon, the disputed point was taken before the Supreme Court. In delivering the judgment of the court, Shah J. observed.

“The Income-tax Officer accepted that the expenditure for payment of remuneration for attending to the contract was laid out for the purposes of the business of the respondent, but reduced the stipulated rate to 10 per cent, on two grounds: That T.M Ayyadurai was the brother of T.M Rangachari and that he was, as a director of the company, bound to attend to all the activities of the company including the contract.

There is no evidence that the agreement was motivated by considerations other than strictly business considerations. There is also no evidence that as a director T.M Ayyadurai was bound to attend to all the activities of the company including the special contract with the Central Government. The duties which the director was bound to perform for earning the remuneration of Rs. 400 per month are not on the record, but even in the opinion of the taxing authorities the duties of T.M Ayyadurai as director did not cover attendance to the contract with the Government. T.M Ayyadurai and T.M Rangachari are brothers, but that by itself is not sufficient to justify an inference that unreasonable or excessive remuneration was agreed to be paid. The person who was called upon to attend to a contract of this magnitude was required to have expert knowledge of the business, apply his time exclusively thereto, travel from time to time, maintain supervision and control at the stage of purchase, redrying, packing, transport and loading for shipment. Presumably, T.M Ayyadurai was such a person, and that is why he was selected for earning for the respondent a large amount of commission by duly performing the contract… We are of the view that the contract with the Government was for the respondent an important contract requiring constant and vigilant application and supervision by a person well acquainted with the practical details of the business. If the management of the respondent as prudent businessman for advancing the interest of the respondent bona fide regarded 30 per cent, of the net profits as reasonable remuneration, the revenue authorities were not justified in reviewing their opinion and reducing the rate of remuneration.”

16. His Lordship also explained how far a question as to whether an expenditure fell within section 10(2)(xv) was a question of law, in the following language:

“The question whether an amount claimed as expenditure was laid out or expended wholly and exclusively for the purpose of such business, profession or vocation has to be decided on the facts and in the light of circumstances of each case. But, as observed by this court in Eastern Investments Ltd v. Commissioner Of Income Tax, West Bengal, the final conclusion on the admissibility of an allowance claimed was one of law.”

17. The other case on the point which we need consider is Swadeshi Cotton Mills Co. Ltd. v. Commissioner of Income-tax. In that case the assessee-company was managed by managing agents, whose remuneration was an office allowance of Rs. 5,000 per month, and 10 per cent, of the net profits of the company. Under the articles of association of the company, the directors were also each entitled to a remuneration of Rs. 100 per month. At an extraordinary general meeting of its shareholders, the article providing for payment of remuneration to directors, was amended to provide for the payment to the directors of a commission of 1 per cent, of the net profits of the company in addition to their monthly remuneration and as a result five directors of the company became entitled to a sum of Rs. 28,218 each for the calendar year 1948. The company claimed the same by way of deduction in its revenue expenditure. The Tribunal found that the payment of the commission was for extra-commercial reasons, on the ground that they did not render any special service in that year; that the management of the company was done by the managing agents and very little was done by the directors; that the remuneration of Rs. 100 per month was not considered by the directors to be inadequate in earlier years; that the increase of the company's profits by about rupees thirty lakhs was due to the control of cloth having been lifted and not any special exertion of the directors. In that view, the Tribunal disallowed the payment of the commission, as it was not incurred wholly and exclusively for the purpose of its business. The High Court, on reference to it, took the same view and, on appeal, the Supreme Court also took the same view and observed:

“It is an erroneous proposition to contend that as soon as an assessee established two facts, viz., the existence of an agreement between the employer and the employee and the fact of actual payment, no discretion is left to the Income-tax Officer except to hold that the payment was made wholly and exclusively for the purpose of the business. Although the payment might have been made, and although there might have been an agreement in existence, it would still be open to the Income-tax Officer to take into consideration all the relevant factors which will go to show whether the amount was paid as required by section 10(2)(xv). The question as to whether an amount claimed as expenditure was laid out or expended wholly and exclusively for the purpose of such business, profession or vocation has to be decided on the facts and in the light of the circumstances of each case.”

18. We need not multiply references to other decisions by the Supreme Court touching upon the point. It is now well-settled that the expression “expenditure laid out or expended wholly and exclusively for the purpose of such business” includes expenditure voluntarily incurred for commercial expediency and in order indirectly to facilitate business. It is immaterial if a third party also benefits thereby. It is further well-settled that an expenditure incurred in maintaining the efficiency of the man-power from time to time utilised in a business is also expenditure wholly or exclusively laid out for the purpose of such business. It is also well-settled that the employment of, say a director, at a reasonable extra remuneration to supervise a particular business of the company, regard being had to his expert knowledge in that particular line of business, is expenditure within the meaning of section 10(2)(xv) and the revenue authorities are not justified in reducing such remuneration. The expression “commercial expediency” is an expression of wide import and expenditure in commercial expediency includes such expenditure as a prudent man may incur for the purposes of business. An expenditure, which is entirely gratuitous and has no connection with the business does not come within the meaning of section 10(2)(xv) of the Act. There is little dispute on this point. What is disputed before us is whether an expenditure of the nature, as in the instant case, falls within section 10(2)(xv) of the Act. We have already noticed that the expenditure was sought to be justified on the twofold ground that a payment made to the widow of a loyal employee, murdered in the course of his duty, would give incentive to the employees of the assessee in putting in efficient service and create a sense of confidence amongst them. Dr. Debi Pal, learned counsel for the assessee, invited our attention to the case of Tata Sons Ltd.…Assessees v. The Commissioner Of Income-Tax, Bombay….*, in which the assessee, a limited company, held the managing agency of Tata Iron & Steel Co. Ltd. Under the managing agency agreement, the assessee was to be paid a commission at a certain rate which was to be computed upon the net profits of the managed company. During the relevant year, the assessee paid voluntarily a certain sum as its share of the bonus, which the managed company paid to some of its officers. The bonus paid by the managed company was not an unreasonable bonus and it was not such that its deduction could not be claimed by the managed company under section 10(2)(xv) of the Indian Income-tax Act. The assessee claimed that the payment made by it was a permissible deduction under section 10(2)(xv) of the Act. In that context Chagla C.J observed as follows:

“It is also suggested by the Attorney-General that the payment by the assessee is entirely gratuitous and no consideration has been proved by the assessee for this payment. In my opinion, the consideration is apparent on the face of the record before us. Once it is assumed, and I think we are justified in making that assumption, that the bonus was paid out of commercial considerations by the managed company, then in the payment of that bonus the assessee would be interested and when it shared that bonus it received part of the benefit which went to the managed company, and that part of the benefit would be the increased commission that the assessee would get by reason of the employees of the managed company being contented and having an impetus to work wholeheartedly and producing more profits for the employers.”

19. In our opinion, the above decision lays down a wholesome test. A payment made to employees in the expectation of creating impetus or encouraging them to put in selfless work for the employer is a payment made out of commercial considerations and/or commercial expediency. To have a body of contented and loyal workers, ready to lay down their lives for the cause of the employer, is a blessing to every commercial concern. If a payment be made in such expectation, such payment cannot but be regarded as an expenditure incurred wholly and exclusively for the purposes of business expediency. Dr. Pal also invited our attention to a decision of this court in Andrew Yule & Co. Ltd. v. Commissioner of Income-tax. In that case the chairman of the board of directors of the assessee-company lost his life, by the action of a riotous crowd, while travelling otherwise than on the assessee's business. Thereupon, the board of directors resolved to pay compensation to his widow, feeling that, if compensation was not paid, there was the likelihood of unfavourable criticism of the company and repercussion from their employees. The assessee-company claimed deduction of this sum as business expenditure. The Income-tax Officer disallowed the payment on the ground that it was gratuitous. The order of the Income-tax Officer was upheld by the Appellate Assistant Commissioner. The Appellate Tribunal differed and held that having regard to the quantum of compensation, as against the emoluments receivable by the murdered chairman, the amount paid as compensation was reasonable and based on commercial expediency alone. The Tribunal, however, disallowed the claim on the ground that the liability to compensation was ascertained by and arose from a resolution dated January 22, 1951, which could not be allowed as an expenditure for the year 1950. On reference to the High Court, G.K Mitter J. observed as follows:

“Speaking for myself I cannot hold that the payment of compensation to the widow of Mr. Cameron on the facts of this case is an expenditure laid out wholly for the purposes of the assessee's business. The company certainly behaved very generously towards the widow of a person who had served it faithfully and efficiently for many years. His death in the circumstances attending it was a great tragedy. The loss of this valuable life certainly affected both the assessee and Mr. Cameron's dependents very seriously. It cannot be denied that the payment of the compensation was likely to engender a feeling in the minds of other servants of the assessee that the company would look after their dependents if anything untoward happened to them. However this may be, I fail to see how the payment can be said to be an expenditure incurred for the company's business. If Mr. Cameron had met his death in the course of a travel for the purposes of the company's business, the more so if the conditions in the country were so unsettled at the time as would lead one to hold that Mr. Cameron was taking a risk in the interest of the company, reasonable compensation paid to his widow for the loss of his life might be a justifiable expenditure. Nothing of the kind, however, happened here. Mr. Cameron's death had nothing to do with the object or purpose of the company.”

(Underlined for emphasis).

20. Relying upon the above-quoted observations Dr. Pal argued that, in the instant case, the employee was murdered in the course of his duty. To have ignored such an act of loyalty might have discouraged other employees to put in their best when faced with circumstances in which Baptist was murdered.

21. Mr. A. Sabyasachi Mukherji, learned counsel for the Commissioner of Income-tax, however, contended that the finding of fact arrived at by the Appellate Tribunal was not such as warranted any interference by this court. He did not dispute the proposition that, generally speaking, whether a particular expenditure was laid out or expended wholly or exclusively for the purposes of the assessee's business may be a mixed question of law and fact and the finding of the Appellate Tribunal on that question may be open to review by the High Court on reference. He, however, contended that where the Tribunal correctly directed itself as to the true scope and meaning of the words “wholly and exclusively laid out for the purposes of the assessee's business” and came to the conclusion that a particular expenditure was not so laid out, the High Court should respect that rinding of fact and not interfere therewith. In other words, he submitted that the Tribunal cannot deviate from the tests laid down in section 10(2)(xv). If it does, its findings become based on a misappreciation of law and therefore liable to be reviewed by this court; but where it does not do so, the finding must be respected. In support of this contention he relied upon the same judgment which was cited before us by Dr. Pal, namely, the judgment of this court in Andrew Yule & Co. Ltd. v. Commissioner of Income-tax. In our opinion, Mr. Mukherji is correct in this branch of his submission. But still, then, it remains for us to find out whether the reasons given by the Tribunal in disallowing this expenditure were such as would be within the tests laid down in section 10(2)(xv). The Tribunal no doubt recited that it was a well-established principle of law that expenses incurred, that might not have been found to have a direct bearing on the business, would still be allowable if the same had been incurred on the grounds of commercial expediency and such expediency could only be gathered from the circumstances prevailing in each case. Such a statement of law was no doubt a correct statement of law. After having stated the law correctly, the Tribunal came to the conclusion that the expediency which was said to be commercial in nature, in the instant case, was to create incentives in its employees to work efficiently, but apart from the fact that such a theory was not one which the facts clearly indicated, there was no such indication also in this payment, inasmuch as no resolution was adopted by the company “to vindicate its intentions”. In our opinion, the Tribunal adopted a much too narrow approach to the question. A resolution resolving to give a payment of pension to the dependents of a murdered employee has no set legal form. The circumstances in which a resolution was adopted have to be considered as a whole. If, in such circumstances, it is reasonable to hold that the resolution was adopted for the purpose either of giving incentives to loyal workers or of creating confidence in the minds of workers, who need face risks to their lives in the discharge of their duties, that the employer would reward selfless loyalty, then the proper legal inference would be that the expenditure was laid out for business expediency. The fact that a general resolution, for making such payment to everybody who met with death in the discharge of their duties under the company, was not passed is not of great relevancy. If the company had passed such a resolution, that might have created a better atmosphere of incentive and confidence in the employees. But death in the discharge of duty may not be a very common occurrence and it may not be necessary to pass a general resolution of the type as was passed in the instant case. Nevertheless, the assessee-company might not have acted prudently, as a businessman, if it had ignored the loyal self-sacrifice made by one of its employees, in the discharge of his duty. By resolving to pay a pension to the dependents of Baptist, it was not unlikely that some sense of security was being brought about in the minds of the employees that the employer would look after their dependents if anything untoward happened to them in the discharge of their duties. As we have already observed, to have a loyal body of employees is of great commercial expediency and its importance should not be in any way minimised. If the assessee-company made a payment to achieve such an object, we are of the opinion that the expenditure was incurred wholly and exclusively for the purpose of business.

22. Mr. Mukherji, for the income-tax department, however, contended that on the facts found we should hold that the payment was made gratuitously and was an instance of generosity to the dependents of a murdered employee, who become destitutes. That was a primary and dominant object, Mr. Mukherji contended, with which the payment was made. If along with that the assessee-company had the other object in mind, namely, to satisfy its employees, the expenditure cannot be said to have been wholly and exclusively incurred for the purpose of the business. In our opinion, this argument has little logic behind it. There is nothing on the record to indicate that generosity was a special virtue with the assessee. Nor is there anything to indicate that the murdered employee or his widow and children were special favourites of the assessee. In the absence of any such indication, it is but reasonable to hold that the resolution to pay pension was passed by a commercial concern out of commercial considerations. Therefore, the dominant object was to have a satisfied and loyal body of employees and this object was sought to be achieved by making the payment of pension to the dependents of a murdered employee. In other words, the humane consideration shown to the widow of the murdered employee was not for any spiritual gain or with a compassionate objective but was a payment made for the purpose of obtaining the earthly advantage of having grateful and loyal employees in its own employment. We, therefore, think that this was an expenditure which was solely laid out for the purpose of the business and the Tribunal was in error in not allowing the deduction of such expenditure under section 10(2)(xv).

23. Dr. Pal, in his fairness, did not contend that the sum of Rs. 8,550, paid as passage money to Mrs. Baptist and the children, the sum of Rs. 25 spent on the wreath sent to the deceased and Rs. 250 incurred as expenditure for repairs to the grave of the deceased should also be allowed as expenditure under section 10(2)(xv).

24. We, therefore, answer question No. 1 partly in the affirmative, that is to say, instead of Rs. 14,855, Rs. 6,000 should have been allowed as expenditure laid out or expended wholly and exclusively for the purposes of the assessee's business and as such was allowable under section 10(2)(xv) of the Indian Income-tax Act. We answer questions Nos. 2 and 3 in the affirmative. The respondent, Commissioner of Income-tax, is to pay the costs of this reference to the assessee.

Masud, J.:— I agree.