In most cases, the disallowances are knocked-off by the appellate authorities, specially in such matters where the Supreme Court has already given its verdict on this subject. One such matter pertains to compensation paid by a company under a voluntary retirement scheme.

Generally speaking, an amount spent by an assessee for labour welfare would be deductible as revenue expenditure if it does not result in the acquisition of a capital asset by the assessee, although it may result in the creation of a capital asset for the employees or a third party.

Thus, expenditure incurred in creating a trust for higher education of children of needy employees is deductible as on revenue account (C.I.T. v. Vazir Sultan (169 I.T.R. 139)). Where, in pursuance of a subsidised industrial housing scheme of the government, the assessee purchasedland for and in the name of the government, on which the government was to construct residential quarters for the employees of the assessee and the assessee had no interest in the property, the expenditure was held to be on revenue account (C.I.T. v. Sundaram (95 I.T.R. 428)).

In C.I.T. v. George Oakes Ltd. (197 I.T.R. 288), the assessee was a limited company and, during the accounting year relevant to the assessment year 1973-74, it paid to nine workers, consequent on their voluntary retirement, a sum of Rs.2,481 representing notice pay. The Income-tax Officer treated this payment as a voluntary payment and, therefore, inadmissible as expenditure wholly and exclusively incurred for purposes of business.

The Appellate Assistant Commissioner, however, took the view that though the payment of Rs.2,481 was in the nature of a voluntary payment, it was made to maintain good relationship with the employees and upheld the claim of the assessee that the expenditure was an allowable item laid out wholly andexclusively for purposes of business.

The Tribunal, in the course of its order, found that the assessee was finding it difficult to function owing to the sustaining of losses. Therefore, with a view to reorganising the branch by reducing the staff, nine workers who had offered to voluntarily retire were paid notice pay as per standing orders. Hence, the expenditure incurred by the assessee for business expediency was allowable as claimed by the assessee.

On a reference before the Madras High Court, there was no dispute that, during the accounting period relevant to the assessment year 1973-74, the assessee had sustained losses and had wanted, by reducing the staff, to bring a reorganisation of the branch, saving on the wage bill as well. Under the standing orders, provision was made for a voluntary retirement scheme and it was stated that, in all such cases of voluntary retirement, the quantum of benefits would be as for retrenchment as per the Industrial Disputes Act.

Though voluntary retirement, underthe provisions of the Industrial Disputes Act, cannot be regarded as retrenchment, yet, under the standing orders which were binding on the assessee as well as on the workers, a scheme had been evolved for voluntary retirement on benefits being made available to retiring workmen, as if they had been retrenched under the provision of the Industrial Disputes Act.

It was not disputed that, if the assessee had resorted to the procedure outlined in the Industrial Disputes Act for retrenching the nine workmen, then the assessee would have been liable to pay such benefits as would be available to the retrenched workmen as per the Industrial disputes Act.

However, the assessee resorted to the voluntary retirement scheme, in and by which, though the retirement of the workmen was voluntary, yet the benefits were available on par with those under the Industrial Disputes Act.

In other words, though under the provisions of the Industrial Disputes Act as such, no liability was cast on the assessee for makingavailable the benefits of retrenchment to the nine retired workmen, yet, under the standing orders, it became necessary for the assessee to meet that obligation.

The purpose of retrenching the nine workmen, as found by the Tribunal, was only to contain the loss, reorganise the branch by reducing the staff and to bring about a reduction in the wage bill as well.

According to the court, these being matters of management pertaining to business considerations and expediency, the expenditure incurred by the assessee in this regard was for purposes of business and also with a view to maintaining good relationship with labour and the expenditure had to be considered as having been laid out wholly and exclusively for business purposes of the assessee.

A reference in this connection may be made to Sassoon J. David and Co. P. Ltd. v. C.I.T. (118 I.T.R. 261 (S.C.)), where the Supreme Court stated that it is too late in the day now to treat the expenditure incurred by a management in paying reasonable sums by wayof compensation for termination of service as not being business expenditure.

In C.I.T. v. Sri Ramavilas Service Ltd. (211 I.T.R. 763), the assessee claimed as business expenditure a sum of Rs.23,084 paid as compensation to the employees who retired voluntarily. The Income-tax Officer did not agree that the said sum was expended by way of business expenditure as it could not be considered as a statutory liability in terms of the provision of section 25-F, 25-FF or 25-FFF of the Industrial Disputes Act.

The Income-tax Officer further held that the payment should be treated as voluntary, and, on that ground, disallowed the claim of the assessee. On appeal by the assessee, the Appellate Assistant Commissioner allowed the claim, applying the decision of the Tribunal in Income-tax Appeal No.193 of 1977-78. On further appeal by the Revenue, the Tribunal upheld the order of the Appellate Assistant Commissioner.

On a reference to the Madras High Court at the instance of the Revenue, the Court held that,according to the order of the Income-tax Officer, the payment of Rs.23,084 was as per the scheme agreed to between the assessee and the employees. That being the position, the court considered whether the said amount represented voluntary payment as contended by the Revenue, or it could be treated as business expenditure, as contended by the assessee.

The court was of the view that the full retrenchment compensation and notice pay were deductible as revenue expenditure under section 37(1) of the Act.

In C.I.T. v. Simpson and Co. Ltd. (No.2) (230 I.T.R. 794), the assessee claimed deduction of the payments made under the Voluntary Retirement Scheme.

It also claimed deduction of Rs.1,18,216 being the recoverable bonus paid to employees, written off in the assessment year 1974-75.

This sum had been paid as advance to the assessee's employees on October 11, 1971, under the agreement dated October 6, 1971, with the stipulation that it would be recovered subsequently.

The assessee submitted that the matterwas later discussed with the union and it was agreed not to recover the same in order to maintain good industrial relations.

It was resolved at the meeting of the board of directors of the assessee-company, held on December 31, 1973, to adjust the above amount to bonus paid account in the financial year 1974-75. The Income-tax Officer rejected the claim made by the assessee for deduction, but the Tribunal allowed it.

On a reference, the Madras High Court held that when the payment was made for the purpose of retrenchment of workers, it was for reducing the staff and to bring about a reduction in the wage bill as well.

Therefore, these were matters of management pertaining to business considerations and expediency and the expenditure incurred by the assessee in this regard was for purpose of business and also with a view to maintaining good relationship with the labour. Hence, such expenditure had to be considered as having been laid out wholly and exclusively for business purposes of the assessee. Assuch, the sum paid under the voluntary retirement scheme was deductible.

In conclusion, there are several other payments made which have been treated as being on revenue account by several courts.

A lump sum paid for the purchase, for the benefit of a former employee, of an annuity equal in amount to the pension(Hancock v. General Inv. (7 I.C. 358)), or paid in commutation of annual premia payable under a staff assurance policy (Green v. Cravens (32 T.C. 359)) or in commutation or reduction of periodic remuneration (Wilson v. Nicholson (25 T.C. 473)), is a revenue disbursement.

Payments made to the trustees of a scheme to buy shares of the paying company for the benefit of the company's employees may be on revenue account (Heather v. P-E Group (48 TC 293 (CA))). The Supreme court held in C.I.T. v. Mysore Spg. & Mfg. Co. Ltd. (78 I.T.R. 4), that the accumulated balance in the provident fund (not settled upon trust) which the employer is compelled by law to transfer to the fund established under theEmployees' Provident Funds Act, 1952 is allowable as revenue business expenditure.