Retrenchment compensation deduction failed where unit transfers showed the liability arose after closure, not in continuing business.

Retrenchment compensation paid for the Kerala processing units was not deductible as a revenue outgoing under section 37 of the Income-tax Act. Deductibility turned on whether the assessee's ten units formed one integrated business or separate businesses; on the facts, the transfer of two units and surrender of the other Kerala units showed that the liability arose after cessation or transfer of those units, not in the course of the continuing business. The agreements and settlement documents linked the liability to the transferred or closed units, and the ventures were not shown to be interlaced, interdependent, or under a single unity of control. The claim was therefore disallowed despite the plea of commercial expediency.

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Issues: Whether the retrenchment compensation of Rs. 4,18,107 paid in respect of the Kerala units was deductible under section 37 of the Income-tax Act, 1961 as a revenue outgoing incurred for the assessee's business.

Analysis: Deductibility depended on whether the assessee's ten processing units constituted one integrated business or separate businesses. On the facts, the transfer of two units to a company and the surrender of other Kerala units showed that the liability for retrenchment compensation arose after cessation or transfer of those units and not in the course of carrying on the continuing businesses. The agreements and settlement documents established that the liability attached to the transferred or closed units, and the business ventures were not shown to be so interlaced, interdependent, or under such unity of control as to form one business. The payment was therefore not an admissible business outgoing merely because it was claimed to have been made on grounds of commercial expediency.

Conclusion: The deduction was not allowable under section 37; the claim was rightly disallowed and the answer was against the assessee.

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