1980 (12) TMI 22 - HC - Income Tax

Summary

Issues:
Interpretation of Section 5(j) of the Kerala Agricultural Income-tax Act, 1950 regarding the deductibility of gratuity payment made prior to the acquisition of property.

Analysis:
The case involved a company owning a rubber plantation that claimed a deduction for gratuity payment made to workers prior to the acquisition of the property. The company had bifurcated from another company, and as part of the settlement, certain workers were allotted to the new company, and gratuity payments were made to them. The Agricultural Income-tax Officer (ITO) initially disallowed the deduction, considering it a capital charge. The Appellate Assistant Commissioner (AAC) and the Tribunal disagreed, citing Section 5(j) of the Act, which allows deductions for gratuity payments made to workers employed in plantations under a statutory obligation. However, the High Court held that since the gratuity payment was made as part of the transfer arrangement and not as a running concern, it constituted a capital charge, and the deduction could not be claimed under Section 5(j) of the Act. The court ruled in favor of the department, stating that the Tribunal's view was incorrect in law.

Conclusion:
The High Court's judgment clarified that gratuity payments made as part of a transfer arrangement, where the liability was accepted by the transferee, cannot be considered as revenue expenditure eligible for deduction under Section 5(j) of the Kerala Agricultural Income-tax Act, 1950. The decision emphasized the distinction between payments made under statutory obligations for ongoing operations and those made as part of a transfer of assets, categorizing the latter as a capital charge.