TMI Blog2008 (11) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... KISHAN SWAROOP CHAUDHARI JJ. K. K. Bissa for the appellant. Arun Bhansali for the respondent. JUDGMENT N. P. GUPTA J. This appeal has been filed by the Revenue against the order of the Tribunal dated July 28, 2006, allowing the appeal of the assessee and setting aside the order of the assessing authority and the Commissioner and thereby allowing deduction for the full amount of Rs.1,06,57,907 in the relevant year being the expenditure claimed under section 37(1) of the Income-tax Act, being the amount paid by the assessee under the approved voluntary retirement scheme, which scheme was approved under section 10(1OC) vide order dated September 12, 2000. 2. The appeal was admitted on March 29, 2007 by framing the following substantial question of law: "Whether in the facts and circumstances of the case, the Tribunal was in error in allowing the entire claim of deduction under section 37(1) of the amount paid by the assessee towards the terminal dues of its employees whose services were brought to an end under the voluntary retirement scheme?" 3. The necessary facts are that the assessee implemented a voluntary retirement scheme floated by it, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered by the Madras High Court in the case of Madura Coats v. Deputy CIT [2005] 273 ITR 32 and was held to be invalid and ultra vires by holding that in the said circular there is a positive direction to treat an cx gratia payment to an employee under voluntary retirement schemes as capital expenditure, which direction is certainly adverse to the assessee. Therefore, to the extent the circular is against the interests of the assessees, it is liable to be held ultra vires. Then, the provisions of section 35DDA were considered and were found to be not applicable, as having come into force with effect from April 1, 2001, only. Then, after considering some other judgments of different High Courts about the aspect of benefit of enduring nature, commercial expediency, etc, it was found that the amount is admissible as deduction to the extent of full amount under the relevant year. 5. We have heard learned counsel for the parties and have gone through the impugned orders, so also the judgments of Madras High Court in Madura Coats' case [2005] 273 ITR 32, and that of the hon'ble Supreme Court in Empire Jute's case [1980] 124 ITR 1. 6. The question precisely is, as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the hon'ble the Supreme Court in Empire Jute's case [1980] 124 ITR 1 to contend that the expenditure is of revenue nature. 9. We may, therefore, take up the judgment of the hon'ble Supreme Court in Empire Jute's case [1980] 124 ITR 1. In that case, of course the question precisely was as to whether a particular expenditure incurred by the assessee is of capital or revenue nature but that question arose in the circumstances that the assessee had a factory with certain number of looms and was a member of the association. With a view to adjust the production of the mills to the demand in the world market, a working time agreement was entered into between the members of the association restricting the number of working hours per week for which the mills were entitled to work their looms and clause 6(a) of the agreement enabled the members to be registered as a "group of mills", if they happened to be under the control of the same managing agents or were combined by any arrangement or agreement and it was open to any member of the group of mills so registered to utilise the allotment of hours of work per week of other member in the same group who were not fully utilis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business; to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account even though the advantage may endure for an indefinite future. Inter alia on this basis, the deduction was allowed as revenue expenditure. Obviously, this judgment lays down a principle though it is not a case of voluntary retirement as such. 10. Then, we may refer to another earlier judgment of the hon ble Supreme Court in CIT v. Ashok Leyland Ltd. reported in [1972] 86 ITR 549. This is a judgment rendered by a Bench consisting of the three hon'ble judges. The controversy in that case arose in the circumstances that a sum of Rs. 2,50,000 was paid by the assessee for the termination of managing agency and was claimed as allowable deduction. The claim was rejected by the Assistant Commissioner but was upheld by the Tribunal. Then, the High Court also decided in favour of the assessee. The hon'ble Supreme Court at page 552 observed that "there are numerous decisions of this court, of the High Courts in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orkmen to continue in service while it offered a temptation for the older employees to retire from service and that payment of compensation to induce the workmen to retire prematurely was an item of expenditure incurred by the company on the ground of commercial expediency, in order to facilitate the carrying on of the business. It was held that such expenditure had been incurred on account of commercial expediency in order to facilitate carrying on business and was held to be allowable under section 37(1) of the Act and that it was not of capital nature. 13. Then, we may refer to yet another judgment of the hon'ble Supreme Court in Sassoon J. David and Co. (P.) Ltd. v. CIT reported in [1979] 118 ITR 261, where there was an agreement of take over and the agreement provided that the sum voted by the company for payment of gratuities and/ or as compensation for loss of employment to the existing directors and employees of the company with respect to their services up to and inclusive of March 31, 1956, and a further amount of Rs.16,188 payable to the managing director should be paid in accordance with the resolution by the company and that Davids should arrange to terminate t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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