JUDGMENT 1. - This appeal has been filed by the Revenue against the order of the Tribunal dated July 28, 2006, allowing the appeal of the assessee and setting aside the order of the assessing authority and the Commissioner and thereby allowing deduction for the full amount of Rs. 1,06,57,907 in the relevant year being the expenditure claimed under section 37(1) of the Income-tax Act, being the amount paid by the assessee under the approved voluntary retirement scheme, which scheme was approved under section 10(10C) vide order dated September 12, 2000. 2. The appeal was admitted on March 29, 2007 by framing the following substantial question of law : "Whether in the facts and circumstances of the case, the Tribunal was in error in allowing the entire claim of deduction under section 37(1) of the amount paid by the assessee towards the terminal dues of its employees whose services were brought to an end under the voluntary retirement scheme ?" 3. The necessary facts are that the assessee implemented a voluntary retirement scheme floated by it, which was duly approved by the Commissioner under section 10(10C) and claimed deduction of the entire expenses to the tune of Rs. 1,06,57,907, paid by way of terminal benefits in the relevant assessment year. The learned Assessing Officer disallowed the claim and held that it is not an expenditure of the nature described in sections 30 to 36 but it is in the nature of capital expenditure. The terminal benefits of the voluntary retirement scheme is a long-term benefit to the assessee-company which will be derived by the assessee over a period of number of years in the future. It was also considered that a new section 35DDA has been inserted by the Finance Act, 2001, with effect from April 1, 2001, the provisions whereof is to take effect from April 1, 2001, as such that the provision would not be applicable. However, the insertion of the said section gives emphasis to the point that nature of payment on account of the voluntary retirement scheme is an expenditure, which needs amortization and no such provision was found in the Act for the earlier period, whereby the claim could be allowed. However, the insertion of the said section gives emphasis to the point that nature of payment on account of the voluntary retirement scheme is an expenditure, which needs amortization and no such provision was found in the Act for the earlier period, whereby the claim could be allowed. The learned Commissioner upheld the addition by finding that by effecting the voluntary retirement scheme there was brought into existence a clear advantage of an enduring nature and, therefore, the amount cannot be allowed as a deduction under section 37(1). The learned Commissioner (Appeals) also considered the circular dated January 23, 2001, issued by the Central Board of Direct Taxes providing that ex gratia amount paid under the voluntary retirement scheme would not be admissible as revenue expenditure, as the test is of enduring benefit, and it is a capital expenditure and directed it to be treated as capital expenditure. 4. The learned Tribunal found that the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT reported in [1980] 124 ITR 1 held that there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit may none the less be on revenue account and the test of enduring benefit may break down and also held that by introducing the voluntary retirement scheme, the assessee sought to carry on its business more efficiently and profitably and did not obtain any advantage in the capital field inasmuch as its fixed capital remained untouched. Then, it was considered that the circular of the Central Board of Direct Taxes came to be considered by the Madras High Court in the case of Madura Coats v. Deputy CIT [2005] 273 ITR 32 and was held to be invalid and ultra vires by holding that in the said circular there is a positive direction to treat an ex gratia payment to an employee under voluntary retirement schemes as capital expenditure, which direction is certainly adverse to the assessee. Therefore, to the extent the circular is against the interests of the assessees, it is liable to be held ultra vires. Then, the provisions of section 35DDA were considered and were found to be not applicable, as having come into force with effect from April 1, 2001, only. Therefore, to the extent the circular is against the interests of the assessees, it is liable to be held ultra vires. Then, the provisions of section 35DDA were considered and were found to be not applicable, as having come into force with effect from April 1, 2001, only. Then, after considering some other judgments of different High Courts about the aspect of benefit of enduring nature, commercial expediency, etc., it was found that the amount is admissible as deduction to the extent of full amount under the relevant year. 5. We have heard learned counsel for the parties and have gone through the impugned orders, so also the judgments of Madras High Court in Madura Coats' case [2005] 273 ITR 32 , and that of the Hon'ble Supreme Court in Empire Jute's case [1980] 124 ITR 1 . 6. The question precisely is, as to whether the assessee is entitled to claim deduction under section 37(1), of the amount paid by the assessee towards the terminal dues of its employees, whose services were brought to an end under the voluntary retirement scheme. Section 37(1) reads as under : "37.(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 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'. Explanation.-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." 7. In our view, even a reading of sections 30 to 36 makes it clear that the expenditure claimed does not fall under any of those sections. Obviously, the only controversy that survives is on the anvil that in order to be the admissible expenditure under section 37(1) two more requirements are required to co-exist, viz., it should not be in the nature of capital expenditure or personal expenses of the assessee and should be laid out or expended wholly and exclusively for the purposes of the business or profession. It is not in dispute that the amount was laid out or expended wholly and exclusively for the purpose of business. And, therefore, the only question that survives is as to whether the expenditure can be said to be of capital nature. 8. As noticed above, learned counsel for the Revenue in this regard relied upon the circular of the Central Board of Direct Taxes dated January 23, 2001. Obviously, learned counsel did not rightly rely upon the provisions of section 35DDA and also submitted that by making this expenditure the assessee has acquired a benefit of enduring nature and is, therefore, a capital expenditure. Learned counsel for the assessee, on the other hand, referred to and relied upon the judgment of the Madras High Court in Madura Coats' case [2005] 273 ITR 32 to contend that the said circular has already been struck down as ultra vires and then relied upon the judgment of the Hon'ble the Supreme Court in Empire Jute's case [1980] 124 ITR 1 to contend that the expenditure is of revenue nature. 9. We may, therefore, take up the judgment of the Hon'ble Supreme Court in Empire Jute's case [1980] 124 ITR 1 . In that case, of course the question precisely was as to whether a particular expenditure incurred by the assessee is of capital or revenue nature but that question arose in the circumstances that the assessee had a factory with certain number of looms and was a member of the association. With a view to adjust the production of the mills to the demand in the world market, a working time agreement was entered into between the members of the association restricting the number of working hours per week for which the mills were entitled to work their looms and clause 6(a) of the agreement enabled the members to be registered as a "group of mills", if they happened to be under the control of the same managing agents or were combined by any arrangement or agreement and it was open to any member of the group of mills so registered to utilise the allotment of hours of work per week of other member in the same group who were not fully utilising the hours of work allowable to them under the working time agreement, provided that such transfer of hours was for a period of not less than six months. This transaction was known as sale of looms hours by one member to another. Under such agreement, the assessee purchased loom hours from four different jute manufacturing concerns and paid a sum of Rs. 2,03,255 during the relevant year and claimed deduction of this amount as revenue expenditure on the ground that it was part of the cost of operating looms, which constituted the profit-making apparatus. It was in those circumstances that the question was considered by the Hon'ble Supreme Court and it was held in para 8 that there is no all embracing formulae which can provide a ready solution to the problem ; no touchstone has been devised. Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation, in respect of which the expenditure has been incurred. Then, it proceeded to refer to few tests formulated by the courts and one was referred as laid down in Atherton v. British Insulated and Helsby Cables Ltd. reported in [1926] 10 TC 155 , wherein it was held that when an expenditure is made not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. Then, this test was held to be required to yield where there are special circumstances and in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 (PC) , it was held to be misleading to suppose, that in all cases securing a benefit for the business would be prima facie capital expenditure (page 251) "so long as the benefit is not so transitory as to have no endurance at all". There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may none the less be on revenue account and the test of enduring benefit may break down. The Hon'ble Supreme Court held that what is material to consider is the nature of advantage in commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. The Hon'ble Supreme Court held that what is material to consider is the nature of advantage in commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. However, if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business ; to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account even though the advantage may endure for an indefinite future. Inter alia on this basis, the deduction was allowed as revenue expenditure. Obviously, this judgment lays down a principle though it is not a case of voluntary retirement as such. 10. Then, we may refer to another earlier judgment of the Hon'ble Supreme Court in CIT v. Ashok Leyland Ltd. reported in [1972] 86 ITR 549 . This is a judgment rendered by a Bench consisting of the three Hon'ble judges. The controversy in that case arose in the circumstances that a sum of Rs. 2,50,000 was paid by the assessee for the termination of managing agency and was claimed as allowable deduction. The claim was rejected by the Assistant Commissioner but was upheld by the Tribunal. Then, the High Court also decided in favour of the assessee. The Hon'ble Supreme Court at page 552 observed that "there are numerous decisions of this court, of the High Courts in the country, as well as of the courts in England, dealing with the controversy whether an item of expenditure should be considered as a capital expenditure or revenue expenditure". It was held that the line that divides revenue expenditure from capital expenditure is often times very thin. Hence, the decisions of courts have not been able to give a quietus to the controversy as to whether an item of expenditure is capital or revenue. The general tests to be applied to distinguish capital expenditure from revenue expenditure have been enunciated in various decisions. However, the difficulty arises when the courts are called upon to apply those tests to a given set of facts. Barring rare exceptions, the facts of no two cases are similar. With this caption, after referring to a few English cases and the judgment of the Calcutta High Court in Anglo-Persion Oil Co. However, the difficulty arises when the courts are called upon to apply those tests to a given set of facts. Barring rare exceptions, the facts of no two cases are similar. With this caption, after referring to a few English cases and the judgment of the Calcutta High Court in Anglo-Persion Oil Co. (India) Ltd. v. CIT reported in [1933] 1 ITR 129 , wherein money was paid by an oil company in a lump sum, as compensation for loss of agency, whereby the company relieved itself of future annual payments of commission, chargeable to revenue account, and the court upheld the contention of the company that it was a revenue expenditure. It was also held that the principle that capital receipt spells capital expenditure or vice versa is simple but it is not necessarily sound and that whether a payment is or is not in the nature of capital expenditure depends, or may depend, upon the character of the business of the payer, and upon other factors related thereto and, after considering all these judgments, the Hon'ble Supreme Court held as under (page 556) : "It is obvious from the facts set out earlier that the compensation paid for termination of the services of the managing agents was a payment made with a view to save business expenditure in the relevant accounting year as well as for a few more years. It was not made for acquiring any enduring benefit or income-yielding asset." 11. Thus, it was found to be a revenue expenditure. 12. Then, we may refer to another judgment of the Hon'ble Supreme Court, in relation to the management of the Indian Cable Co. Ltd. v. Their Workmen reported in AIR 1972 SC 2195 . In that case, certain amounts were paid by the employer under the voluntary retirement scheme, and the Hon'ble Supreme Court held that the voluntary retirement scheme enabled the younger workmen to continue in service while it offered a temptation for the older employees to retire from service and that payment of compensation to induce the workmen to retire prematurely was an item of expenditure incurred by the company on the ground of commercial expediency, in order to facilitate the carrying on of the business. It was held that such expenditure had been incurred on account of commercial expediency in order to facilitate carrying on business and was held to be allowable under section 37(1) of the Act and that it was not of capital nature. 13. Then, we may refer to yet another judgment of the Hon'ble Supreme Court in Sassoon J. David and Co. (P.) Ltd. v. CIT reported in [1979] 118 ITR 261 , where there was an agreement of take over and the agreement provided that the sum voted by the company for payment of gratuities and/or as compensation for loss of employment to the existing directors and employees of the company with respect to their services up to and inclusive of March 31, 1956, and a further amount of Rs. 16,188 payable to the managing director should be paid in accordance with the resolution by the company and that Davids should arrange to terminate the services of all employees with effect from March 31, 1956, and also to arrange that all directors (including the managing director) resign their offices and Tatas or their nominees should thereafter be entitled to appoint or elect all or any of the members of the staff and directors of the company as they deem fit. On those facts the Hon'ble Supreme Court held that since the amount was laid out wholly and exclusively for the purpose of the business of the appellant, there was no reason for denying the benefit of section 10(2)(xv), which corresponds to section 37. It was found that the appellant-company continued to function even after its control passed on to the Tatas and the expenditure in question was laid out for the purpose of the company's own trade and not for the trade of Tata's who were only its shareholders. As a result of the expenditure, the appellant-company was in fact benefited by reduction in its wage bill and the sum of Rs. 1,27,511 was expended by the appellant on the ground of commercial expediency and in order indirectly to facilitate the carrying on of its business and was, therefore, allowable as a deduction. 14. Then, we may refer to a judgment of the Calcutta High Court, in CIT v. Machinery Manufacturing Corporation Ltd. reported in [1992] 198 ITR 559 . 1,27,511 was expended by the appellant on the ground of commercial expediency and in order indirectly to facilitate the carrying on of its business and was, therefore, allowable as a deduction. 14. Then, we may refer to a judgment of the Calcutta High Court, in CIT v. Machinery Manufacturing Corporation Ltd. reported in [1992] 198 ITR 559 . In that case, the payment of compensation to induce workmen to retire prematurely, so also any amount paid to the employee which is by way of incentive, i.e., bonus, were treated to be revenue expenditure. In the former it was held that the amounts were paid by the company to the employees for commercial expediency and that it was incurred wholly and exclusively for the purpose of the business, while in the later it was held to be treated as additional emoluments and such payment is inextricably connected with the business and necessarily for commercial expediency. In this case, the judgment in Indian Cable Co. Ltd.'s case, AIR 1972 SC 2195 , was also referred to and relied upon. 15. Then, we may also refer to the judgment in CIT v. Simpson and Co. Ltd. (No. 1) reported in [1998] 230 ITR 703 , and another judgment of the Bombay High Court in CIT v. Bhor Industries Ltd. reported in [2003] 264 ITR 180 , which are also on the same point, and have been referred to, and relied upon by the learned Tribunal. 16. We may observe that no judgment to the contrary has been cited on the side of the Revenue. 17. Thus, the above discussion shows that it is consistently established the legal position that the expenditure of the nature, as is involved in the present case, is clearly allowable as revenue expenditure under section 37(1) of the Act and we do not find any ground to take any contrary view. 18. As a result of the aforesaid discussion, the question as framed is answered against the Revenue and in favour of the assessee. 19. The appeal thus has no force and is dismissed. *******