TMI Blog1992 (6) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... ompensation payable to the employees has been rightly allowed as an expenditure incurred wholly and exclusively in connection with the transfer of the cinema theatre. It was further contended that the asset transferred was a business asset and the liability was fastened to the asset and the discharge of the liability was a condition precedent for the completion of the transfer of the asset, and relied on the following decisions: (a) CIT vs. A. Venkataraman Ors. (1982) 28 CTR (Mad) 329 : (1982) 137 ITR 846 (Mad); (b) CIT vs. C.V. Soundararajan Am. (1984) 150 ITR 80 (Mad) and (c) CIT vs. Shakuntala Rajeswar (1986) 53 CTR (Del) 82 : (1986) 160 ITR 840 (Del) The learned CIT did not accept the above contentions of the assessee and he set aside the assessment basing reliance on the following decisions: (a) V.S. Vasumathi vs. CIT (1980) 123 ITR 94 (Ker); (b) CIT vs. Dr. P. Rajendran (1981) 20 CTR (Ker) 364 : (1981) 127 ITR 810 (Ker); and (c) CIT vs. Gemini Cashew Sales Corporation (1967) 65 ITR 643 (SC) and directed the ITO to re-compute the capital gains after giving sufficient opportunity to the assessee in this regard. Hence, the second appeal by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be retrenched after paying their wages, gratuity, compensation, terminal benefits and similar other dues whatsoever and free and unencumbered possession shall be accorded to the first party. It is agreed that the tenants occupying the rooms adjacent to the theatre building need not be evicted by the second party. 2. The first party will not be responsible or answerable for any of the liabilities relating to the theatre business or otherwise. 5. The concerned parties shall within six months from this date retrench the employees of the Rajmahal Theatre and carry out such other requirements and transfer the property by registering the required documents to the individuals or concerns as nominated by the first party." The first party is the transferee of the Rajmahal Theatre. Subsequently, the sale deed No. 3883 of Kottayam sub-registry was executed, therein it is mentioned that "while so in order to sell her holdings including the Rajmahal Theatre and its assets, it became necessary to stop the theatre business and retrench all the employees of the said business paying compensation and other dues and rights and accordingly she has done so". Hence, from the terms of the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer." So in this case, it is clearly proved that the assessee being the previous employer has paid the retrenchment compensation in the light of the agreement as referred to above under s. 25FF, proviso (c) of the Industrial Disputes Act. 5. Then the question that arises for consideration is whether the retrenchment compensation paid can be treated as an expenditure incurred wholly and exclusively in connection with the transfer of the asset and is deductible under s. 48(1} of the Act. On the facts and circumstances of the case, we hold that the expenditure incurred in this case is wholly and exclusively in connection with the transfer of asset. In support of our view, we place reliance on the decision reported in (1982) 28 CTR (Mad) 329 : (1982) 137 ITR 846 (Mad) wherein it is held that— "as, under the agreement, the assessee had to give vacant possession, the payment made to the tenants to obtain vacant possession was an expenditure incurred wholly and exclusively in connection with the agreement of sale which p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the expenses arose. Hence, there was no illegality involved in the Tribunal permitting the assessee to put forward the contentions relating to the deductibility of the item of expenditure. The words "in connection with" used in cl. (i) of s. 48 of the IT Act, 1961, dealing with the deductions in computing the income chargeable under the head "Capital gains", are very wide in their ambit and, hence, there is no warrant for importing a restriction that, to qualify for deduction, the expenditure must necessarily have been incurred prior to the passing of title. The crucial test to be applied is whether the expenditure was incurred wholly and exclusively in connection with the transfer and it is immaterial whether it was incurred prior or subsequent to the passing of title. Under the scheme of the Kerala Land Acquisition Act, the consideration for the transfer is to be fixed in the first instance by the Land Acquisition Officer by the award to be made by him under s. 11 of the Act and in case the owner of the property is dissatisfied with the award the quantum of compensation is to be finally fixed by the Civil Court to which a reference is to be made under s. 20. In case where th ..... 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