TaxTMI 
TaxTMI 
2004 (6) TMI 15
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....e Tribunal had referred only the third question. Relying on this Mr. Shome wanted to contend that the entire argument of Dr. Pal is wholly misplaced. Therefore, the court should rely upon only the argument advanced by Dr. Pal in relation to the third question and there is no scope for this court to intervene with regard to the questions contained in the first and second ones. The learned Tribunal records that the assessee could not produce anything to show that there was inter-connection and inter-lacing between the various units of business of the assessee. According to Mr. Shome, the accounts are kept separately and maintained separately. The head office is at Delhi. The registered office is at Calcutta and the units are scattered in different parts of India. Therefore, in the absence of establishment of interconnection and inter-lacing, the burden of proof whereof lies on the assessee, having not been established, the benefit of deduction cannot be allowed in respect of the closure compensation paid to the employees by the assessee, particularly when the authorities under the Industrial Disputes Act denied approval to the closure. Appellant's submission: Dr. Pal however, disp....
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....on is not dependent on the denial of the approval to the closure. The third question since referred is of wide amplitude. The justification of the disallowance is to be answered. In order to find out the answer to the justification the only question we are to look into is as to whether this expenditure was incurred for the purpose of business or not; if it is held to be a business expenditure, in that event the deduction was allowable. According to Mr. Shome, the closure compensation was aimed at payment to the workers after the closure was declared. The intention of the closure is to close down the business. Therefore, it cannot be treated to be an expenditure for carrying on the business but for closing down the business. Therefore, it is not allowable. But, in our view, the question would be different if this business is part of the other business and closure of this business would not amount to closing of the business of the assessee but would be a closure of one of the units of the business carried on by the assessee for the purpose of preventing incurring of loss from this particular unit so that the assessee, in its business expediency might think, can carry on the rest of ....
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....parate businesses in its wisdom the assessee might carry on all the units as one business. As soon as it was found that there was unity of control and management the inter-connection and inter-lacing is to be presumed and would be apparent The very finding, that even after the closure of the Allahabad unit the business was carried on by the assessee, was itself a pointer to the oneness of the business. When the unit was under the control of one management, the inter-connection, inter-lacing and inter-dependence is a fait accompli. In fact, after the above finding the learned Tribunal had approached the question altogether on a misapprehension with regard to its own conception of the principle of law as laid down by various decisions. In K. Ravindranathan Nair v. CIT [2001] 247 ITR 178, the apex court had occasion to hold that the ten units run by the assessee constituted a single business, that the four units in Kerala did not constitute a separate business and that, therefore, the payment that was made was not on account of closure of business, and as such would be allowable under section 37. It had recorded that the Tribunal had found that there was unity of control and manageme....
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....t different places, the same would not constitute a single business. If the assessee carries on several distinct and independent businesses, and one of such businesses is closed before the previous year, he cannot claim allowance, under section 10 of the Indian Income-tax Act, 1922, of an outgoing attributable to the business which is closed against the income of his other businesses. If one assessee carries on different businesses and one business is closed down the expenditure on account of closing down the business would not be eligible for deduction. On the facts in the said decision it was found that two businesses though on the same lines and/or the same character did not constitute one single business but were two different ventures. Therefore, on the facts, this decision is distinguishable and does not apply in the present facts and circumstances of this case. Whether two or more lines of business can be regarded as the same or as different businesses, does not depend upon the special methods prescribed by the income-tax authority for computation of taxable income. It depends upon the nature of the business, the nature of organisation, management, source of capital, fund u....
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.... Court under section 256 of the Income-tax Act, 1961, is advisory in nature; the High Court is supposed to give its opinion on the question of law referred to it. It is a settled proposition of law that the Tribunal is the last court of findings of fact. The High Court is not empowered to interfere with the findings of fact. But it cannot be said that there is an absolute bar on the High Court with regard to findings of fact while exercising jurisdiction under section 256 of the Act. There are exceptions to this rule. The exceptions are related to questions involving mixed questions of law and fact. On established facts inferences drawn are question of law. The High Court can look into the established fact and examine whether the inference drawn from the established fact conforms to law and the legal principles. If it appears that based on the established facts the inference drawn is contrary to the settled principles of law, in such cases the High Court can interfere with the conclusion arrived at by the Tribunal on the established facts. Where the principle of law is not properly appreciated and applied, then the decision can be interfered with. Where the expenditure does not co....
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....ourse of hearing before us, the assessee has filed a detailed paper book 'which inter alia, contained the assessee's submissions before the Commissioner of Income-tax during the course of proceedings under section 263. Though learned counsel for the assessee argued that there was considerable inter-connection amongst various units of the assessee, no material in this behalf has been produced before us. On a perusal of the assessee's submission during the course of proceedings under section 263 also we do not find any specific details of any inter-connection, inter-lacing and inter-dependence prevailing between the discontinued unit of the assessee, Jayshree Tyre and Rubber Products, Allahabad, on the other hand, and various units of the assessee-company so as to constitute a single integrated business. We have already mentioned that in the case of L.M. Chhabda and Sons v. CIT [1967] 65 ITR 638 the hon'ble Supreme Court have clearly held that it is for the assessee to establish that the different ventures constitute parts of the same business. The hon'ble Rajasthan High Court have reiterated this position in the case of CIT v. Mohan Enterprises [1994] 208 ITR 146 that the burden is ....
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....aid after the closure of the business but before the closure was permitted by the authority. The permission to close down the business was denied by the appropriate authority, which was confirmed by the judicial authority. Therefore, there was no closure of the business but the amount was spent to get rid of the employees in order to ensure prevention of loss and earning profit. By reason of such payment the manufacturing part of the unit ceased to function while the trading part of the unit continued even for the subsequent years. These facts are not in dispute. It is not in dispute that this unit was running at a loss. In order to make the other lines of business or units or the business as a whole viable, the assessee attempted to reduce the working force which the assessee had done by easing out some of its employees through such payment termed as closure compensation. As soon as the closure was denied by the appropriate authority, the compensation cannot be termed as closure compensation but a payment made to make the business viable. In fact, the expenditure was incurred for the purpose of carrying on the business and this payment was made when the business was being carried ....
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....essee to carry on the business (Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265 (SC)). Retrenchment compensation and pay in lieu of notice were not payments made for the purpose of carrying on the business but for winding up or closing down the business. Therefore, such expenditure cannot be regarded as business expenditure. It must be a pre-existing liability. In Sree Meenakshi Mills Ltd. v. CIT [1967] 63 ITR 207 the apex court held that the deductibility of expenditure incurred in prosecuting a civil proceeding depends upon the nature and purpose of the legal proceeding in relation to the assessee's business and cannot be affected by the final outcome of that proceeding. However wrong-headed, ill-advised, unduly optimistic or over-confident in this conviction the assessee might appear in the light of the ultimate decision, expenditure in starting and prosecuting a civil proceeding cannot be denied as a permissible deduction in computing the taxable income merely because the proceeding had failed, if otherwise the expenditure was laid out for the purpose of the business wholly and exclusively, that is, reasonably and honestly incurred to promote the interest of the business. P....
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.... in case of termination or retrenchment, the assessee would have been liable to pay them retrenchment compensation and such payment would have been indisputably allowable as deduction. Therefore, in the perspective of a prudent businessman for facilitating carrying on of its business and for having a smooth running of the work and maintaining the goodwill for the business, if the assessee as a trader thought it fit to incur this expenditure by sharing retrenchment compensation paid by Lyons (India) Pvt. Ltd., such payment could not be disallowed. Applying the tests as laid down in Sree Meenakshi Mills Ltd. [1967] 63 ITR 207 (SC); Heath and Co. (Calcutta) P. Ltd. [1978] 114 ITR 605 (Cal); J.K. Cotton Manufacturers Ltd. [1975] 101 ITR 221 (SC) and British Insulated and Helsby Cables Ltd. [1925] 10 TC 155 (HL), in the present case, we find that the assessee in its business wisdom attempted to avoid incurring loss by reducing the workforce of one of the units running at a loss for earning profit from the other units, which the assessee deemed fit for the purpose of carrying on the business. Therefore, the said payment was an allowable deduction. Conclusion: In view of the above disc....