S.P Goyal, J.:— This judgment will dispose of Income-tax References Nos. 39 and 40 of 1975 and 44 and 45 of 1977 as they relate to the same assessee.

2. The assessment years involved in the said references are 1967-68 and 1968-69. Initially, the Tribunal referred only one question relating to the assessment year 1968-69 at the instance of the assessee which is the subject-matter of Income-tax References Nos. 39 and 40 of 1975. Later on, three more questions, two relating to the assessment year 1967-68 and one relating to the year 1968-69 were also referred on the mandamus issued by this court which are the subject-matter of Income-tax References Nos. 44 and 45 of 1977. The said four questions read as under:’

“1. Whether, on the facts and circumstances of the case, the honourable Tribunal was justified in drawing a conclusion from the facts that the sum of Rs. 3,348 forfeited on account of security deposit of ex-employees constituted a receipt of a revenue nature?

2. Whether, on the facts and circumstances of the case, the Tribunal was justified in drawing a conclusion that 50% of the expenditure incurred on the eye-camp for the benefit of the employees was not for purposes of the business of the assessee-company, thereby confirming the disallowance of Rs. 1,600 out of the total expenditure of Rs. 3,205 specially when such expenditure had been allowed in full in earlier years?

3. Whether, on the facts and circumstances of the case, the Tribunal was justified in law in drawing the conclusion from the facts of the case, that the claim of the assessee-company for deduction of Rs. 2,000 on account of pension paid to Smt. Durga Devi Khanna, a widow of an exemployee, as deductible revenue charge incurred in the normal and regular course of the business, was merely an ex gratia payment, unconnected with the business of the assessee-company?

4. Whether, on the facts and circumstances of the case, the Tribunal was justified in drawing the conclusion from the facts of the case that the claim of the assessee-company for deduction of Rs. 1,925 on account of pension paid to Smt. Durga Devi Khanna, widow of an ex-employee, as deductible revenue charge incurred in the normal and regular course of business, was merely an ex gratia payment unconnected with the business of the assessee-company?”

3. The assessee is a limited company engaged in the manufacture of cycles at Sonepat in the Haryana State. In the assessment year 1967-68 it organised an eye-camp for the removal of cataract free of charge on which it incurred an expenditure’ of Rs. 3,205. The whole of this amount was claimed as deduction but the ITO allowed only one-half of the expense. Having failed even before the AAC, the assessee went to the Appellate Tribunal in second appeal. The facts found by the Tribunal were that the eye-camp was open to outsiders and that no data was available about the number of outsiders who took advantage of the camp. It was, therefore, held that the I.T authorities were justified in disallowing half of the amount and their orders were accordingly confirmed. Question No. 2 noted above relates to this claim of the assessee and, on the facts found, no fault can be found with the order of the Tribunal. The learned counsel for the assessee, however, urged that if the expenditure is incurred for the benefit of the workers it would constitute a deductible expenditure, no matter even if some benefit of it has also accrued to the persons other than the workers. Reliance for this contention has been placed on the following observations of the Supreme Court in CIT v. Chandulal Keshavlal & Co., [1960] 38 ITR 601 (headnote):

“If the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible. 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. 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. But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of the trade or business of the assessee.”

4. In this case, the assessee-firm was a managing agent company. In accordance with the managing agency agreement the commission for the accounting year was 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 Rs. 1,00,000 only as its commission. After taking into consideration the various circumstances, the Appellate Tribunal found that the amount was expended for financial expediency and was not given as bounty to strengthen the managed company so that if the financial position of the managed company became strong, the assessee would benefit thereby. On these facts, the order of the Tribunal allowing the deduction on the ground of commercial expediency was upheld by the Supreme Court. It is, therefore, obvious that the decision in the said case has no bearing on the facts of the present case. However, even according to this decision, it has to be shown that the expenditure was incurred wholly and exclusively for the purpose of trade and business of the assessee. As already noticed above, according to the facts found by the Tribunal, the expenditure had not been incurred for the benefit of the workers only nor was there any evidence to show that the eye-camp was primarily meant for the workers working in the industrial unit of the assessee. In the face of these findings we find no scope to differ from the conclusions arrived at by the Tribunal and question No. 2 is accordingly answered in the affirmative, i.e in favour of the revenue and against the assessee. The facts relevant to the purpose of question No. 1 and as found by the Tribunal are that three new employees of the assessee-company had entered into an agreement with the company for serving it for an agreed period and deposited Rs. 3,348 by way of security. As these employees left the service of the company before the stipulated period, the company forfeited the security deposits. The ITO treated this amount as assessee's income but his order was reversed by the AAC.

5. In second appeal before the Tribunal, it was contended by the revenue that the assessee was allowed expenditure on the training of the employees; that the amount of security forfeited was nothing but reimbursement of the expenditure incurred by the assessee on training and that at any rate the amount was not deposited by the employees as capital amount and, accordingly, the ITO was justified in including the amount in the assessee's total income. After taking into consideration, the respective contentions of the parties, the Tribunal found that though the amount could not be treated as trading receipt of the company, yet the amounts were realized in connection with an item of expenditure which was not the capital expenditure of the company. It, therefore, held that in effect and in essence the amounts were by way of reduction of the expenditure of the company on the training of its personnel and were, therefore, accountable in the profit and loss account of the assessee.

6. The correctness of the view of the Tribunal on this question has been challenged by the learned counsel for the assessee on two grounds, namely, that the finding that the company incurred an expenditure on the training of the three employees is based on no evidence and that the amounts when received being not trading receipt, anything happening thereafter would not have the effect of rendering it an item of profit and gain of the company. So far as the first argument is concerned, it is beyond the scope of the question referred to this court nor it arises from the order of the Tribunal. No notice of this contention, therefore, can be taken in this reference. For his other contention, the learned counsel relied on a Bench decision of the Andhra Pradesh High Court in Badri Narayan Balakishan v. CIT, [1965] 57 ITR 752. The said case related to the amount of sales tax received by the assessee from the customers and credited to a separate account called the “deposit account”. Obviously, this decision has no relevancy whatsoever to the present case. According to the finding of the Tribunal, the assessee had incurred expenditure on the training of the three employees which had been allowed as business expense. When part of this expense has been realised by the company by way of forfeiture of the security deposits, it was rightly held by the Tribunal that, in essence, the amounts of the security deposits resulted in the reduction of the expenditure of the company on the training of its personnel and, as such, were liable to be included in its profit and loss account. This question, therefore, is also answered in the affirmative, in favour of the revenue and, against the assessee.

7. As regards the remaining two questions, the facts found by the Tribunal are that the two amounts of Rs. 2,000 and Rs. 1,925 were paid to Smt. Durga Devi Khanna, widow of an ex-employee, K.L Khanna, and these payments were found to be entirely gratuitous and not because of any commercial expediency. The learned counsel for the assessee relying on CIT v. Royal Calculia Turf Club, [1961] 41 ITR 414 (SC), Calcutta Landing & Shipping Co. ‘Ltd. v. CIT, [1967] 65 ITR 1 (Cal), CIT v. Laxmi Cement Distributors P. Ltd., [1976] 104 ITR 711 (Guj), Sassoon J˜ David and Co. P. Ltd. v. CIT, [1979] 118 ITR 261 (SC) and CIT v. Anna Art Press (P.) Ltd., [1979] 117 ITR 821 (Cal), contended 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 the business and that it is immaterial if a third party benefits thereby. The expression “commercial expediency” is an expression of wide import and expenditure for commercial expediency includes such expenditure as a prudent man may incur for the purpose of the business. So the payment made to the 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 commercial expediency and has to be regarded as an expenditure incurred wholly and exclusively for the purposes of the business. Mr. Awasthy, the learned counsel for the revenue, also relied on Sassoon J. David and Co. P. Ltd.'s case, [1979] 118 ITR 261 (SC), wherein three tests laid down by the Supreme Court in Gordon Woodroffe Leather Manufacturing Co. v. CIT, [1962] 44 ITR 551 for determining the nature of such like expenditure were reiterated. It is not necessary to refer to the other cases relied upon by the assessee except the two cases, namely, Calcutta Landing & Shipping Co. Ltd., [1967] 65 ITR 1 (Cal) and Anna Art Press (P.) Ltd., [1979] 117 ITR 821 (Cal). These cases are based on different facts and have no bearing on the present case. The decisions of the Calcutta High Court in the said two cases, no doubt, support the contention of the assessee but with due respect to the learned judges we are unable to follow’ them in view of the judgment cited of the Supreme Court in Sassoon J. David and Co. P. Ltd.'s case, [1979] 118 ITR 261 noticed hereinafter.

8. In Sassoon J. David and Co. P. Ltd.'s case, while interpreting the words, “wholly and exclusively” used ins. 10(2)(xv) of the Indian I.T Act, 1922, (equivalent to s. 37(1) of the I.T Act, 1961), ‘their Lordships laid down the law as under (headnote):

“The expression ‘wholly and exclusively’ used in section 10(2)(xv) of the Income-tax Act, 1922, does not mean ‘necessarily’. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of the Act even though there was no compelling necessity to incur Such expenditure. The fact that somebody other than the assessee is also benefited by the expenditure should not come in “the way of an expenditure being allowed by way of deduction under section 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law.

9. The three tests laid down by the Supreme Court in Gordon Woodroffe Leather Mfg. Co. v. CIT, [1962] 44 ITR 551, viz., (i). that the payment should have been made as a matter of practice which affected the quantum of salary, (ii) that there was an expectation by the employee of getting a gratuity, and (iii) that the sum of money was expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business of the assessee, have to be read disjunctively.” It is, therefore, evident that before a payment made to an employee or to his dependant can be said to have been made on account of commercial expediency, the assessee has to show that the payment qualifies under one of the said three tests. The assessee never claimed that the payment was, made as a matter of practice which affected the quantum of salary and the claim set up by him was that the money was paid on the ground of commercial expediency. The facts found by the I.T authorities on the contrary were that it was not known as to when K.L Khanna had died and that the payments made to his widow were entirely gratuitous and had not been made on account of commercial expediency. As the employee had died some time after his retirement, any payments made to his widow, which are not made as a matter of practice, would obviously be gratuitous payments and not because of any commercial expediency. If the payments had been made to the widow of an employee who had died during the course of his employment, then there would be something for the assessee to show that the payments were made because of commercial expediency but when an employee has retired and got all the benefits of his service in the company any payment made after his death to his widow would not entail any commercial expediency. We, therefore, find no reason to differ from the view of the Tribunal and questions Nos. 3 and 4 are accordingly answered in favour of the revenue and against the assessee. No; costs.

B.S Dhillon, J.:— I agree.