Ramanujam, J.
1. A common question arises in all these cases. For assessment years 1963-64 and 1964-65, the assessee, who is the same in all these cases, claimed deduction of certain amounts which had been paid as gratuity to certain employees who had retired, in the first two cases. This deduction was allowed by the Agricultural Income-tax Officer. But, later on, he chose to revise the assessment and disallowed the deduction claimed. For the assessment year 1967-68, even in the original assessment, the Agricultural Income-tax Officer did not allow the deduction claimed towards the gratuity amount paid. The reason given by the Income-tax Officer for not allowing the deduction of the amount paid as gratuity to a retired employee is that those payments had no nexus with the future conduct of the business of the assessee, and that, therefore, it could not be claimed as a deduction under Section 5(e) of the Madras Agricultural Income-tax Act. This disallowance was upheld by the appellate authority. There was a further appeal to the Tribunal.
2. The Tribunal has, however, found that the amounts paid are not ex gratia, but payments made in pursuance of a consistent practice which has been followed right through by the assessee at least from 1949 and that, therefore, the claim for the amount of gratuity under Section 5(e) has to be upheld. This decision of the Tribunal is challenged before us.
3. It is true that an assessee can claim deduction of any expenditure under Section 5(e) only if such expenditure is laid out or expended wholly or exclusively for the purpose of the land. Therefore, unless there is sufficient nexus established between the expenditure incurred and the carrying on of the business of plantation, expenditure cannot be claimed as deduction. This is the view taken by the Supreme Court in Gordon Woodroffe Leather Manufacturing Company v. Commissioner of Income-tax, : [1962]44ITR551(SC) , while construing the scope of Section 10(2)(xv) of the Indian Income-tax Act, 1922, which is analogous to Section 5(e) of the Madras Agricultural Income-tax Act, There, the Supreme Court has expressed the view that if an amount had been paid in pursuance of any scheme of gratuity, then it will be an allowable deduction under Section 10(2)(xv). But, if it is a casual or ex gratia payment specially given to some employees while similar benefits are not extended to other employees, that cannot be said to be an expenditure which will come under Section 10(2)(xv). The learned judges in that case have, however, held that the proper test to apply in cases of this kind is to see whether the payment was made as a matter of practice which affected the quantum of salary or whether there was an expectation by the employees of getting a gratuity or whether the sum of money was paid on the ground of commercial expediency or whether the payment had been in order indirectly to facilitate the carrying on of the business. While holding that the payment of gratuity in that case was not an allowable deduction under Section 10(2)(xv), it has been observed that if the payment is made in pursuance of the general practice adopted by the assessee, then the payment would be an allowable deduction.
4. The learned counsel for the revenue places reliance on the decision of the Kerala High Court in Teekoy Rubbers (India) Ltd. v. Stale of Kerala, : [1966]60ITR350(Ker) . That was a case where a deduction was claimed in respect of the amount of gratuity paid by the company during the assessment year to the widow of a deceased employee and also another employee on his retirement. It was held in that case that gratuity payments were not allowable as deductions as there was no connection between the purpose of the payments and the future conduct of the business of the assessee, and the reason for the disallowance is that the payments are ex gratia payments which cannot be supported on grounds of commercial expediency unless there is a clear nexus between the payments and the future conduct of the business. In that case it was specifically found by the court that the payments had not been made in pursuance of the regular gratuity scheme and that, therefore, the payments should be taken only as ex gratia payments unrelated to any legal obligation.
5. In this case, the Tribunal has specifically given a finding that the payment of gratuity has been made in pursuance of the general practice adopted by the company in respect of all employees and that as many as nine employees (retired officials) have been given such gratuity in a series of years. Therefore, on the facts of this case, we have to proceed on the basis that it has been established that it is the practice of the assessee to pay gratuity in respect of retired employees and that there was, therefore, an expectation by the employees of being paid a gratuity. Though normally a gratuity is not an expenditure for the purpose of business, if the payment, though made after the employee has ceased his connection with the business, has been made in pursuance of a general practice adopted by the assesses, then it can be inferred that the employees have joined the service in the expectation of being paid a gratuity. In such a case, the expectation would act as an inducement for the employees to hold on to the service till retirement and this will facilitate the carrying on by the employer of the business without any break or interruption. Therefore, if once the general practice of paying gratuity in respect of retired employees is established, then it has got a sufficient nexus with the future carrying on of the business, so as to attract the benefit of Section 5(e). In this view, we uphold the view of the Tribunal in all these cases.
6. The petitions are dismissed. There will be no order as to costs.