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<h1>Section 37 allows deduction for labour dispute payments where units form single business; fact findings only overturned for perversity</h1> <h3>K Ravindranathan Nair Versus Commissioner of Income-Tax</h3> SC held the taxpayer was entitled to deduction under section 37: the HC erred in reappraising Tribunal's factual findings absent a perversity challenge. ... Entitlement to claim deduction under section 37 - payment made due to labour disputes in Kerala units - HELD THAT:- The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact-finding authority. A decision on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In this case, there was no such question before the High Court. Unless and until a finding of fact reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of fact reached by the Tribunal and to give an answer in law to the question of law that is before it. The only jurisdiction of the High Court in a reference application is to answer the questions of law that are placed before it. It is only when a finding of the Tribunal on fact is challenged as being perverse, in the sense set out above, that a question of law can be said to arise. The only argument, fairly, that has been raised before us by the Revenue is that this expenditure could not be said to have been incurred in the course of the business because the four Kerala units in respect of which the expenditure was incurred had been shut down by the assessee. This argument would be acceptable if the Tribunal had found that these four units constituted a separate business. Having regard to the finding that these and all the other units outside Kerala formed one business, the expenditure must be held to have been incurred in regard to such business. Upon the facts found by the Tribunal, there is no getting away from the fact that the expenditure that was incurred by the assessee was a business expenditure and that the assessee was entitled to its deduction under section 37. Issues:Claim for deduction under section 37 of the Income-tax Act, 1961 for payment made due to labour disputes in Kerala units.Analysis:The case involved an appeal from a decision of the High Court of Kerala regarding the assessment year 1972-73. The primary issue was whether the assessee, an individual engaged in the business of processing cashewnuts in ten units, was entitled to claim a deduction of Rs. 4,18,107 under section 37 of the Income-tax Act, 1961. The payment in question was made to settle with trade unions representing the workmen of units in Kerala after a lock-out was ordered due to labour problems. The Income-tax Officer initially disallowed the claim, but the Tribunal and the appellate authority allowed it. The High Court, however, ruled against the assessee, leading to the appeal in the Supreme Court.The Tribunal extensively analyzed the business operations of the assessee and concluded that all ten units constituted a single business entity. It found that the units were interlinked with unity of management and control, operated under a central financing system, and shared common operational aspects. Therefore, the payment made due to the labour disputes was considered to be incurred for the purposes of the business, as it aimed to resolve industrial issues affecting a part of the unified business. The Tribunal highlighted that the assessee had the discretion to manage his business operations, including reducing the number of units, and any related expenses were considered allowable under section 37.The High Court, however, disregarded the findings of fact by the Tribunal, alleging a misdirection in law. It claimed that the Tribunal had overlooked crucial evidence and wrongly placed the burden of proof on a party. The Supreme Court criticized the High Court's approach, emphasizing that the Tribunal is the final fact-finding authority, and its findings can only be challenged if proven to be perverse. Since there was no question raised on the Tribunal's findings being unreasonable, the High Court was obligated to base its decision on the Tribunal's factual determinations.The only argument presented by the Revenue was that the expenditure could not be considered as incurred in the course of business since the Kerala units were shut down. However, based on the Tribunal's finding that all units formed a single business, the expenditure was deemed to be related to the overall business operations. Consequently, the Supreme Court allowed the appeals, set aside the High Court's judgment, and ruled in favor of the assessee, affirming the deduction claim under section 37.