Payments on compassionate grounds

Mr Choksi,

In terms of the CBDT circular No 573 dated 21.08.1990, Rs 1.50 lacs,the amount proposed to be paid, would have been exempt in thebereaved lady's hands had her husband been an employee of C Ltd. Buther deceased husband had had no privity of contract with C Ltd. Hewas never on that company's payroll. In view of this, I think thisamount would be taxable in her hands u/s 56(2)(vi). Since thispayment does not fall within any of the TDS sections, C Ltd won't beliable to make TDS on it.You never asked whether C Ltd will be allowed this amount as abusiness expenditure. I think this amount can be claimed as abusiness expenditure. There have been numerous cases where courtshave dilated upon the phrase "for the purposes of the business" anddifferentiated it from the words "for the purposes of earningprofits". The former phrase is much wider in scope; the latter ismuch narrower. A payment that might apparently seem to have noconnection with day-to-day running of the business will beadmissible u/s 37(1) if it goes to serve business interests in anyconceivable manner in the short- or the long-term. The fact thatdirectors of C Ltd have decided to provide succour to the haplesswoman itself serves as an evidence that this layout is an amountexpended wholly and exclusively for the purposes of the business. Itis not for the revenue to decide what does or does not serve theinterests of the business. The assessee, being seasoned businessman,is the best judge to measure how an expense, even though notstatutory, would enure to the benefit of the business.I think this amount can certainly be claimed on the basis of itscommercial expediency and furtherance of the reputation of thebusiness.FBT is out of the question.

Thanks,

CA Sanjeev Bedi

--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=MFF12K71VfAbN4OPAlZFvVpv-apLs_M08dlF-FxM7nrFzJUJJvTE3cooFIIsMfDQSn-5JPEh6k67TNU3vzxTFkJiTcOHf_sxEH3sNpk, PRAMOD GOENKA wrote:>>> How come it is not a business expenditure for the company ?>> CA. Pramod Goenka>> According to me it can be read as follows:->> Since their is no legal obligation for the widow to receive themoney any money received will fall with in the term of gift andaccordingly qualify as Income under Income Tax Act>> For Company giving said money to widow, no TDS needs to bededucted however the said Expenses will be disallowed since it isnot a Business Expenses.>>> On 2/25/08, Kunjan Choksi wrote:>> Dear Members>> Facts>> A company desires to give an amount of 6 months equivalent salaryto the widow the contractor-employee Mr X. Now Mr. X when died wasnot on thepayroll of the company but on the payroll of one of thecompany's contractor M/s PLSPL.>> Eg. Company C Ltd. desires to give 1.5 lacs ( 6 mths eq salary )to Mrs X. Mr. X when he died was on the payroll of "ProfessionalLabour Services Pvt. Ltd", a contractor giving human resourcesservices to Company C. The above deal is such that Company C Ltd.shall directly without any mediation of M/s PLSPL, the contractorcompany.>>> Query>>> Whether the receipt of the above sum is income in the hands of thewidow of the deceased? If yes, then whether tax needs to be deductedand at what rate> Whether the above payment shall fall within the net of FringeBenefit tax.>

Anticipating enlightened thoughts from learned members>>>

With Regards>

Kunjan Choksi