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2016 (9) TMI 513 - HC - Income TaxRetrenchment compensation paid by subsidiary to the workers of the two units which belonged to the assessee and which were transferred to the subsidiary and which amount was reimbursed by the assessee under a contractual agreement - allowable as an admissible deduction - Held that:- The Court held that by virtue of the fact that the employees had been taken over by the transferee company with the benefit of employment on and from the date of transfer, strictly speaking with no right to claim gratuity, it was difficult to see how the payment, which was made by the assessee to the transferee company could be really treated as gratuity. The Court held that it would be more appropriate to describe the payment as a contribution made voluntarily to the transferee company in order to provide funds to it for payment of gratuity, which could be claimed by the employees from the transferee company, though in respect of the period of employment with the assessee company. The judgment of our Court in Suren & Co. (1981 (4) TMI 31 - BOMBAY High Court ), which held the field as on the date of the Tribunal's order, was later on set aside by the Supreme Court in the case of W.T. Suren And Co. Ltd. vs. C.I.T. [1998 (2) TMI 4 - SUPREME Court] holding that the amount of gratuity paid to the transferee company was not on account of transfer of the unit but on account of stopping of that business and the employees working in that unit becoming surplus resulting in termination of their services. The payment of gratuity was made by the assessee, not on its own but at the instance and on behalf of the employees, whose services, though terminated in the assessee company, were taken over by the transferee company and that this was a payment of gratuity amount with the consent of the employees. In that view of the matter, the Supreme Court held that the payment of gratuity awarded by the assessee to the transferee company was, in the circumstances of the case, an expenditure wholly laid out or expended for the purpose of the business of the assessee and was an allowable deduction. This judgment of the Supreme Court clearly supports the Assessee's case here, though in the present case, as we have noted above, we are not really concerned with the payment of gratuity, but with payment in accordance with a commercial obligation. In that view of the matter, we are clearly of the opinion that the payment of ₹ 13.91 lakhs made by the Assessee to its subsidiary is an amount expended for the purpose of the business of the Assessee, and is, thus, an admissible deduction.
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