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TMI Blog1983 (11) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of this amount was disallowed by the ITO on the ground that this is compensation paid to employees when the assessee closed down a school of commerce and a tailoring institute which he was running. The AAC held that half of the amount constituted gratuity, that only the remaining half constituted retirement compensation and that, as the gratuity liability was a statutory one, the same is an allowable deduction. He, therefore, restricted the disallowance to Rs. 15,300. The department questions the correctness of the same. 4. It was contended by the learned departmental representative that even assuming that the gratuity liability paid by the assessee was a statutory liability, it is not an admissible deduction in view of the fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of gratuity was 'a statutory liability cast on the assessee which he was obliged to discharge'. He had, therefore, held that 'the same is not hit by the decision of the Supreme Court'. This distinction is not sustainable. The payment of retrenchment compensation under the Industrial Disputes Act is as much a statutory liability as the gratuity payable under the Payment of Gratuity Act. No distinction can, therefore, be drawn between the two on the ground that one is a statutory liability and the other is not. The test, laid down by the Supreme Court in the case of Gemini Cashew Sales Corpn. is whether the expenditure was for the purpose of carrying on the business. The relevant portion of the head note reads thus : ". . . Normally the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been done. In the present case, the claim has been based solely on the basis of a payment made on account of the closing down of the business. 6. We consider it proper to refer to some more rulings on the subject though they have not been referred to by either side at the time of the hearing. In Stanes Motors (South India) Ltd. v. CIT [1975] 100 ITR 341 (Mad.), the business of the assessee-company was taken over by a new company and the employees were also taken over without break in service. The gratuity reserve attributable to the employees transferred to the new company was made over to the new company. There was no payment to any employee. Applying the decision of the Supreme Court in the case of Gemini Cashew Sales Corpn., it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business or for the purpose of carrying on the business. . . " CIT v. Salem Bank Ltd. [1979] 120 ITR 224 (Mad.) was another case where the business of a bank was taken over by another bank. It was held that once the assessee is found to have not carried on business of banking subsequent to the transfer of its business to the new bank, it is not entitled to claim the amount as an allowance under section 37(1) of the Income-tax Act, 1961 ('the Act'). All these decisions are against the claim of the present assessee. 7. We may now refer to two decisions where payment of gratuity was allowed. CIT v. Sri Venkateswara Bank Ltd. [1979] 120 ITR 207 (Mad.), was also a case where the assessee-bank was taken over by another bank. At the time of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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