Unity of control test governs business integration, making retrenchment compensation deductible as business expenditure for a common undertaking.

Retrenchment compensation paid on closure of a hotel business was held to be deductible against the assessee's franchise business because the activities formed one integrated business. The decisive test was unity of control, supported by common management, common business organisation, common administration and a common place of business, rather than similarity in the nature of the activities. Compensation payable under the retrenchment provisions was treated as a mandatory statutory liability and, where incurred for a single commercial undertaking, as allowable business expenditure. The deduction was therefore accepted in favour of the assessee.

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Issues: Whether retrenchment compensation paid to workmen of the closed hotel business could be adjusted against the franchise business carried on by the assessee and allowed as a deductible expenditure.

Analysis: The decisive test for determining whether different activities form the same business is unity of control and not merely the nature of the activities. Where there is common management, common business organisation, common administration and a common place of business, the businesses may be treated as one integrated business. The liability to pay compensation under the retrenchment provisions is mandatory in law, and compensation paid under the statute is an allowable business expenditure when the businesses are part of the same commercial undertaking.

Conclusion: The retrenchment compensation was correctly treated as allowable against the franchise business, and the finding was in favour of the assessee.

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