TMI Blog1986 (2) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... 1978 and APS 3388 on 28-1-1979. After the sale of the above buses he terminated the services of his employees and paid Rs. 24,000 to them. The assessee claimed that a sum of Rs. 24,000 was paid as gratuity to the employees on termination of their services and so it is an allowable deduction. The ITO held that on closure of business the assessee terminated the services of his employees to whom Rs. 24,000 was paid. The payment of gratuity of Rs. 24,000 is not admissible as the liability does not arise in the course of business or for the purpose of carrying on of the business. This liability springs from the closure of the business only. Thus, he disallowed the claim. On appeal, the AAC upheld the disallowance. Against the same, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was no gratuity scheme and so the question of paying gratuity to the employees did not arise. So it is only retrenchment compensation paid to the employees for termination of their services after the closure of the business. The payment made is neither in the course of the business nor for the purpose of business. Hence, it is not allowable as a deduction. It is true that payment was made during the accounting year. But it was paid after the closure of the business and after the termination of the services of the employees. Hence, this liability of Rs. 24,000 incurred after the closure of the business cannot be allowed as a business expenditure. 6. In Gemini Cashew Sales Corpns.' case, the Supreme Court held that the liability to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d." In Venkatesa Colour Works v. CIT [1977] 108 ITR 309 (Mad.) after the business was closed down the assessee paid retrenchment compensation to the workers. On those facts the Madras High Court held that the amount paid to the workers after the closure of the business was not allowable as a deduction under section 37 of the Income-tax Act, 1961. In Stanes Motors (South India) Ltd. v. CIT [1975] 100 ITR 341 (Mad.), the assessee's business of retreading division was transferred to a subsidiary company which took over the workers belonging to the retreading division. The gratuity payable to those employees amounting to Rs. 56,275 was claimed as deduction under section 37. The Madras High Court held that the amount of Rs. 56,275 cannot be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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