SASSOON J. DAVID & CO. (P) LTD., BOMBAY vs C.I.T., BOMBAY

The Supreme Court held that retrenchment compensation paid to employees whose services were terminated can be considered an allowable deduction under Section 10(2)(xv) of the Indian Income Tax Act, 1922, provided it meets the criteria of being incurred for commercial expediency. The Court clarified that the tests established in Gordon Woodroffee's case must be read disjunctively, and since the payment satisfied the third test of commercial expediency, the High Court's disallowance was erroneous. The Court allowed the assessee's appeal, permitting the deduction of the retrenchment compensation and annuity payments.