Judgment :- 1. This case has been referred to a Full Bench to settle the conflict that is felt to exist between the Division Bench ruling of this Court in the Highland Produce Co. Ltd's case (1975 KLT. 646=102 LT R 803) and the decisions in Haji Azeez and Abdul Shakoor Brothers' case (41 ITR. 350) and the Malayalam Plantations Ltd's case (53 ITR. 140) on the one hand, and the unreported Division Bench ruling in ITR. No. 66 of 1975 on the other. Some of the other decisions relating to the point were also noticed in the reference order made by the Division Bench and it was felt that the matter required consideration by a Full Bench. 2. The facts are stated in the statement of the case sent up by the Income-tax Appellate Tribunal, Cochin Bench. The assessment year is 1971-72. The accounting year being the period from 1-9-1969 to 31-8-1970. The Assessee is a company which has a registered office in Kerala, which went into voluntary liquidation on 23-3-1970. On 7-3-1970 it sold its stock and machinery to one Sudarsan Trading Company for a consideration of Rs. 20,09,962. The purchaser agreed to take over the services of such of the Assessee's employees to whom the provisions of the Industrial Disputes Act applied. At the time of the sale on 7-3-1970 by virtue of the provisions of the Kerala Industrial Employees' Payment of Gratuity Act, 1970, the Assessee had incurred liability for the payment of gratuity to its workers with effect from 18-2-1970. When the Act was brought into operation the said gratuity was estimated at Rs. 4,44,988, the correctness of which was not disputed. The liability of the Company for the amount calculated at Rs. 4,44,988 as gratuity was agreed to be paid by purchaser of the Company at a future date. The consideration for the same included adjustment of this amount against the purchase-price payable by the Sudarsan Trading Company and the Assessee. The balance amount alone was paid so that as far as the Assessee was concerned, there was accord and satisfaction of the amount of the calculated amount of the gratuity. It has been found that this arrangement was with the consent of the concerned workers. For the relevant assessment year, the Assessee claimed a deduction of the sum of Rs. 4,44,988 as a business expenditure under S.37 of the Act. It has been found that this arrangement was with the consent of the concerned workers. For the relevant assessment year, the Assessee claimed a deduction of the sum of Rs. 4,44,988 as a business expenditure under S.37 of the Act. The claim was disallowed by the Income-tax Officer. But on appeal, it was allowed by the Assistant Commissioner of Income-tax. On further appeal by the Revenue, the order of the Appellate Assistant Commissioner was sustained. The Tribunal has sent up the following question of law for our determination. "Whether the expenditure of Rs. 4 44.988 is an expenditure incurred wholly and exclusively for the purpose of the business within the meaning of S.37 (I) of Income-tax Act 1961 as it applied to the assessment year 197172?" 3. S.37 (1) of the Income-tax Act reads: "37(1). Any expenditure (not being expenditure of the nature described in S.30 to 36 and S.80VV and not being in the nature of capital expenditure or personal expenses of the assessee). laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". in order to qualify for deduction under the Act it is necessary to show that the amount in question was "laid out or expended wholly or exclusively" for the purpose of the business of the Assessee. The nature of the liability to pay gratuity fell to be considered by a Division Bench of this Court in Commissioner of Income-tax v. Highland Produce Company Ltd. (1975 KLT. 646:102 ITR. 803). The Division Bench referred among others, to the two rulings of the Supreme Court viz. Kesoram Industries and Cotton Mills Co. Ltd. v Commissioner of Wealth tax (1966 (2) SCR. 688: 59 ITR. 767) and Standard Mills Company Ltd v. Commissioner of Wealth tax (1967(1) SCR 768: 63 ITR. 470). It also considered the decision in Indian Molasses Co. (P) Ltd v. Commissioner of Income-tax, West Bengal (1959(37) ITR. 66)) and the principle of the decision of the House of Lords in Southern Railway of Peru Ltd v. Owen ((1957) A.C. 334)). approved by the Supreme Court in the Metal Box Company of India's case (73 ITR. 470). It also considered the decision in Indian Molasses Co. (P) Ltd v. Commissioner of Income-tax, West Bengal (1959(37) ITR. 66)) and the principle of the decision of the House of Lords in Southern Railway of Peru Ltd v. Owen ((1957) A.C. 334)). approved by the Supreme Court in the Metal Box Company of India's case (73 ITR. 53) In the light of the principle of these decisions the Division Bench took the view that the liability to pay gratuity was a contingent liability, but an estimate of liability was ascertainable with substantial accuracy and can be taken into account for arriving at the true profits and gains of the Assessee; and that the principle of the decision of the House of Lords in 1957 A.C. 334, approved by the Supreme Court in the Metal Box Company's case, must govern the payment of gratuity under the Gratuity Act. The proposition thus set out by this Court, based on sound precedent, must be accepted. 4. But in the Reference Order directing this to be placed before a Full Bench, it was felt that the principle of certain decisions to which we shall immediately call attention, had not received consideration either by the Income-tax Appellate Tribunal or in some of the decisions of this Court which we have referred to earlier. Our attention was called to the Supreme Court's pronouncement in Haji Aziz and Abdul Shakoor Bros's case (41 ITR. 350) and the Malayalam Plantations Ltd's case (ITR 53, p. 140). In the earlier of these cases, it was observed: "A review of these cases shows that expenses which are permitted as deductions are such as are made for the purpose of carrying on the business, i.e. to enable a person to carry on and earn profit in that business. It is not enough that the disbursements are made in the course of or arise out of or are concerned with or made out of the profit of the business but they must also be for the purpose of earning the profits of the business. As was pointed out in Von Glehn's case (1923 (2) K. B. 553) an expenditure is not deductible unless it is a commercial loss in trade and a penalty imposed for breach of the law during the course of trade cannot be described as such. As was pointed out in Von Glehn's case (1923 (2) K. B. 553) an expenditure is not deductible unless it is a commercial loss in trade and a penalty imposed for breach of the law during the course of trade cannot be described as such. If a sum is paid by an assessee conducting his business, because in conducting it he has acted in a manner which has rendered him liable to penalty, it cannot be claimed as a deductible expense. It must be a commercial loss and in its nature must be contemplatable as such." The principle was re-affirmed in the Malayalam Plantations' case (53 ITR. 140). In making the reference to a Full Bench, the Division Bench felt that this aspect of the matter had not been considered by the Division Bench in the Highland Produce Company's case (102 ITR. 903), nor by the later Division Bench in the un¬reported judgment in ITR. No. 66 of 1975. 5. We have examined the position fully and completely with the aid of the Counsel. We are satisfied that the relevant aspects have received treatment and discussion, from the Tribunal and that its finding has been arrived at after taking into account the relevant aspects which have to be considered on the point. 6. Counsel for the Revenue attempted to argue before us that the claim for deduction of the amount in question falls under S.36 (1) (v) of the Income-tax Act and for that reason it is not an admissible item of deduction under S.37 of the Act. No such contention seems to have been advanced before the Tribunal; and on the facts disclosed before us, we are unable to find that the claim falls under S.36 (1) (v) of the Act, and for that reason, the Assessee is disentitled to claim exemption under S.37 of the Act. Counsel for the Revenue cited several rulings before us in support of his contention that a claim for deduction under S.37 of the Act or the corresponding provision viz., S.10 (2) (xv) of the earlier 1922 Act can be successfully laid only if the claim does not fall within any one of the specific provisions of the Act. No authority is needed for this position. The Section itself is clear. No authority is needed for this position. The Section itself is clear. But none of the decisions cited by Counsel for the Revenue go to the extent of stating that a claim which cannot satisfy the requirements of any one of the specific Sections must be defeated under the residuary section (S. 37) of the Act on the ground that it could well have been fitted into anyone of the specific Sections. We are unable to sustain this objection of Counsel for the Revenue. 7. Counsel for the Assessee drew our attention to the decision of the Supreme Court in Sree Meenakshi Mills Ltd.'s case (63 ITR. 207) for the proposition that the deducibility of an amount under S.37 depends essentially on the nature of the proceedings or the nature of the claim sought to be deducted. In Indian Copper Corporation Ltd. v. Commissioner of Income-tax, Patna (38 ITR. 544) it was laid down that in order to sustain the claim for deduction under S.10 (2) (xv) of the Income-tax Act, 1922, there was no need for the Assessee to show a direct co-relation in point of time between the expenditure incurred and the profits earned. Ramaswami C. J. who spoke for the Court observed: "It was however, submitted by the learned standing Counsel that if the payment was to be deducted under S.10 (2) (xv) of the Indian Income-tax Act, it must be made for the purpose of earning the profits and there must be a direct nexus between the payment of the amount and the earning of the profits. It is, however, necessary to notice that in S.10 (2) (xv) of the Indian Income-tax Act the expression used is "any expenditure laid out or expended wholly and exclusively for the purpose of such business." This expression was introduced by the Amendment Act of 1939. and before the amendment the expression used was "incurred solely for the purpose of earning such profits". The formula now used in S.10 (2)(xv) is wider than the formula used before the 1939 amendment. In my opinion it is not necessary that there should be any direct co-relation in point of time between the expenditure and the earning of any profits. The formula now used in S.10 (2)(xv) is wider than the formula used before the 1939 amendment. In my opinion it is not necessary that there should be any direct co-relation in point of time between the expenditure and the earning of any profits. I have already stated that a sum of money may be spent not because of necessity or with a view to direct an immediate benefit to business, but if the expenditure is made on the ground of commercial expediency and indirectly to facilitate the carrying on of the business, it may still be expenditure made wholly and exclusively for the purpose of the business and so fall within the ambit of S.10 (2) (xv) of the Indian Income-tax Act. This view is borne out by the decision of the Australian High Court in Nevill and Co. Ltd. v. Federal Commissioner of Taxation (56 C.L.R. 290) where Latham, C. J. observed at page 301 as follows "No expenditure, strictly and narrowly considered, in itself actually gains or produces income. It is an outgoing, not an incoming. Its character can be determined only in relation to the object which the person making the expenditure has in view. If the actual object is the conduct of the business on a profitable basis with that due regard to economy which is essential in any well conducted business, then the expenditure (if not a capital expenditure) is an expenditure incurred in gaining or producing the assessable income. If it is not a capital expenditure it should be deducted in ascertaining the taxable income of the tax payer." The decision was followed by the Madras High Court in Binddiram Balchand's case (48 ITR. 548). Another decision quite in point is that of the Allahabad High Court in Maho Madhesh Sugar Mills (P) Ltd. v. Commissioner of Income-tax (92 ITR. 503). The Court had to deal with a provision for payment of gratuity, under a Government order which provided that the gratuity would be to an employee not only in respect of his future services but also for his past services. In order to ascertain the quantum of liability as on the date the order came into effect, the past services of the employees were also taken into account. In order to ascertain the quantum of liability as on the date the order came into effect, the past services of the employees were also taken into account. Although no part of the gratuity may have been made payable by the Assessee in any of the earlier years, the gratuity ascertained on an actuarial calculation after the Government order was held to be a liability in praesenti, capable of ascertainment, and was a permissible business expenditure in the assessment year concerned The decision is quite in point. The principle of the decision was followed by the Delhi High Court in Delhi Flour Mills Co Ltd's case (95 ITR. 151) and also by the Bombay High Court in India United Mills Ltd.'s case (98 ITR 426). Our High Court has taken the same view in Highland Produce Company's case (102 ITR 803) and in the unreported judgment in ITR. No. 66 of 1975. In the light of these decisions we find no force in the contention of Counsel for the Revenue that the incurring of expenditure for payment of gratuity much ahead of the actual time for payment of the gratuity would not amount to an expenditure incurred "wholly and exclusively for the purpose of the business". 8. It was contended that the Tribunal has not dealt with or considered the question whether the provision for payment of gratuity was an amount "wholly and exclusively incurred" for the purpose of the business. We are unable to agree. The matter has been discussed by the Tribunal in Para.3 and 4 of its order, and at the end of Para.4, the Tribunal clearly found that the payment of liability to which the employer was subject under the Gratuity Act, to the workers was an expenditure wholly and exclusively laid out or expended for the purpose of the business. In para 5 of the Statement of Facts, the Tribunal set out the same view. Counsel for the Revenue contended that the decision of the Madras High Court in Stones Motors (South India) Ltd v. Commissioner of Income-tax, Madras (100 ITR. 341) had taken a contrary view on identical facts. Assuming it had, in the light of the principles of the decisions which we have referred to and examined already, we are unable to sustain the submission of the Counsel. 9. 341) had taken a contrary view on identical facts. Assuming it had, in the light of the principles of the decisions which we have referred to and examined already, we are unable to sustain the submission of the Counsel. 9. In the result, we answer the question in the affirmative i. e. against the Revenue and in favour of the Assessee. A copy of this judgment under the seal of the court and the signature of the Registrar, will be communicated to the Income-tax Appellate Tribunal. Dismissed.