TaxTMI 
TaxTMI 
1976 (12) TMI 85
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....e under s.37 of the Income-tax. In the original assessment the ITO allowed deduction of a sum of Rs. 70,000 claimed as retrenchment compensation and gratuity. Subsequently he sought to reopen the assessment because these two payments were not incurred in the carrying on of the business but on account of the closure of the business and was not of a revenue nature and, therefore, not allowable as a deduction under s. 37. In its reply dated 15th April, 1974 to the ITO, in response to his notice under s. 147, the assessee had set out the details of these payments. In regard to the gratuity payment its reply was as under:-- "In regard to the gratuity, we submit that the Union had raised a demand for gratuity for their benefit and the dispute in....
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....d matters were taken to other presses, where printing had been completed, the business had continued and that higher retrenchment compensation was payable as provided in s.25F. In the circumstances it was considered expedient to accept the contention of the workers. There was hence a settlement and the Labour Court passed its order on 12th Aug., 1970, by which these employees became entitled to a further payment, making a total sum of Rs. 33,142.75 by way of retrenchment compensation. The final amount paid to these workers was thus paid in accordance with the provision of s. 25F, and not under the proviso of s.25 FFF. It may kindly be noted that the business in fact continued and was closed only on 15th March, 1969 and on that the books of....
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....continuance of the business and not after closure of the business." The above reasonings of the assessee were not acceptable to the ITO on the ground that the retrenchment of staff and consequent payment of compensation and gratuity arose because of the closure of the business. He, therefore, disallowed these payments in the reopened assessment. On appeal, the AAC also confirmed the reopening of the assessment as well as the disallowance of the payments of gratuity and retrenchment compensation. 3. On appeal before us, the assessee's counsel placing a copy of the memo of termination of service dated 3rd Mar., 1969 and a copy of the deed of dissolution, executed on 15th March, 1969, explained the background leading to the payment of the ab....
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....losed the business." Relying in the above facts he contended that this is a case which would not come within the ratio of the decision of the Supreme Court in CIT Kerala vs. Gemini cashew Sales Corpn., (1) because the facts there were that the liability arose after the closure of the business and not before the further it arose not in the carrying on of the business but on account of transfer of the business. Similarly with regard to the decision in the case of Stanes Motors (South India) Ltd. vs. CIT Madras (2), it was contended that decision was based on the fact that there was no obligation to pay any gratuity in respect of the transferred employees and the transfer did not arise in the course of the business or for the purpose of carry....
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.... through others. Therefore, it cannot be said that the closing down has taken place on 3rd March, 1969 when the payments in question were made. In the two cases referred to by the learned counsel and relied on squarely by the departmental representative, we find that there first of all the liability has not arisen to the assessee company. In fact in the case reported in 65 ITR 643, the fact was that the liability to pay retrenchment compensation arose for the first time after the closure of the business and not before and it arose not in the carrying on of the business but on account of the transfer of the business. Similarly in the other case (100 ITR 341) also their Lordships felt that the liability in that case was wholly contingent and ....