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TMI Blog1976 (7) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... uidation of the company by a resolution passed in the creditor's meeting held on 10th March, 1964. In accordance with the aforesaid resolution liquidators were appointed who took over the charge of the business undertaking of the assessee company with effect from 11th March, 1964. The appointment of the liquidators as aforesaid however was made by an ordinary resolution of the company passed in a general body meeting dt. 10th March, 1964. For appointment of the liquidators, however, the company law required the passing of a special resolution after completing the formalities necessary for that. The Registrar, Joint Stock Companies, therefore, did not accept the aforesaid ordinary resolution sending the company into liquidation with effect from 10th march, 1964. In compliance with the requirement of law therefore another general body meeting was summoned wherein a special resolution was passed on 29th Sept., 1964, taking the company into voluntary liquidation. In the meanwhile the State Govt. had taken over the entire electricity generation and supply undertaking of the company on 15th March, 1964. 3. The account of the company for the asst. yr. 1964-65 were closed on 10th March, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the generation of electricity or the relevant expenses…………" 5. In the accounts filed by the assessee in respect of asst. yr. 1965-66 covering the period 11th March, 1964 to 29th Sept., 1964, the assessee claimed inter alia various payments to staff on retrenchment due to the business of the company having been taken over by the Rajasthan Government. The result as per the aforesaid profit and loss account after adjustment of the aforesaid expenses was a loss of Rs. 47,803. A further expenditure of Rs. 40,154 paid by the assessee on staff gratuity account was claimed over and above this, for while debiting the staff gratuity account originally in the profit and loss account the assessee company had debited a sum of Rs. 10,773 only to the profit and loss account as against the actual payment of Rs. 50,927 made to the staff, the remaining amount of Rs. 40,154 having been debited by the assessee company to the 'staff gratuity fund account'. A total loss of Rs. 88,057 was claimed by the assessee in the revised return. But the ITO the claim of the assessee for loss on the ground that the expenses in question debited to the profit and loss account had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned AAC had erred in holding that no business was carried on in the previous year corresponding to the asst. yr. 1965-66 as has been admitted by the learned AAC. The accounting period of the company began on 11th march, 1964 and ended on 29th Sept., 1964 and that it was common ground that during the aforesaid period for at least 4 days from 11th March, 1964 to 15th March, 1964, the business of generation and distribution of electricity continued. The payments to the labourers during the aforesaid accounting period, being business expenses should have been allowed. 8. It was also pleaded on behalf of the assessee that the profits under s. 41(2) were not taxable in the hands of the assessee as the sales were made in the course or creditor's winding up of the company and as such, the sales were for and on behalf of the creditors. 9. On behalf of the revenue, the orders of the authorities below were relied upon. 10. In the present case the main question for determination is whether the ratio of the decision of the Hon'ble Supreme Court in the case of CIT vs. Gemini Cashew Sales Corpn. 65 ITR 643 applied to the facts of the case. If the case is covered by the aforesaid ratio, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the employer, the right of the workmen to claim compensation remains contingent. A workman may, before the transfer of ownership of the business, himself terminate the employment, he may die or he may become superannuated : in none of these cases the owner of the business is under any obligation to pay retrenchment compensation to the workmen. The obligation to pay retrenchment compensation becomes definite only when there is retrenchment by the employer, or when the ownership or management of the undertaking is, except in the cases contemplated by the proviso, transferred to a new employer, and not till them. The right therefore, arise from determination of employment, or from transfer of the undertaking : it has no existence before these events take place." 11. At page 649, their Lordships further observed "as already discussed, the liability to pay retrenchment compensation arose for the first time after the closure of the business and not before. It arose not in the carrying on of the business but on account of the transfer of the business. During the entire period that the business was continuing, there was no liability to pay retrenchment compensation. The liability whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing expenses of Rs. 108 are such as one incidental to the carrying on of the business. There is no dispute that the business was carried on during the year under consideration for 5 days i.e. from 11th March, 1964 to 15th March, 1964 both days inclusive these expenses should be allowed. It is, as such in our opinion, of no consequence that the income for the period 11th March, 1964 to 15th March, 1964, which was properly assessable during the year under consideration has, by the consent of both the said been assessed in the year immediately preceding. In law it nevertheless is the income of the previous year under consideration. The expenditure in question being relatable to the business should be allowed during this year. We, therefore, direct that the expenses referred to above shall be allowed subject to the adjustment of Rs. 200 which have already been allowed by the ITO while computing the assessable income. 15. That leaves for decision the remuneration for realisation of amount paid to J.N. Sharma and B.D. Gargieya @ 1 per cent on realisation for the period amounting to Rs. 2,606 the allowability or otherwise of this item has against to be examined with reference to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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