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TMI Blog2008 (11) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... minal dues of its employees whose services were brought to an end under the voluntary retirement scheme?" 3. The necessary facts are that the assessee implemented a voluntary retirement scheme floated by it, which was duly approved by the Commissioner under section 10(10C) and claimed deduction of the entire expenses to the tune of Rs.1,06,57,907, paid by way of terminal benefits in the relevant assessment year. The learned Assessing Officer disallowed the claim and held that it is not an expenditure of the nature described in sections 30 to 36 but it is in the nature of capital expenditure. The terminal benefits of the voluntary retirement scheme is a long-term benefit to the assessee-company which will be derived by the assessee over a period of number of years in the future. It was also considered that a new section 35DDA has been inserted by the Finance Act, 2001, with effect from April 1, 2001, the provisions whereof is to take effect from April 1, 2001, as such that the provision would not be applicable. However, the insertion of the said section gives emphasis to the point that nature of payment on account of the voluntary retirement scheme is an expenditure, which needs am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso the judgments of Madras High Court in Madura Coats' case [2005] 273 ITR 32, and that of the hon'ble Supreme Court in Empire Jute's case [1980] 124 ITR 1. 6. The question precisely is, as to whether the assessee is entitled to claim deduction under section 37(1), of the amount paid by the assessee towards the terminal dues of its employees, whose services were brought to an end under the voluntary retirement scheme. Section 37(1) reads as under: "37(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'. Explanation.-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." 7. In our view, even a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was open to any member of the group of mills so registered to utilise the allotment of hours of work per week of other member in the same group who were not fully utilising the hours of work allowable to them under the working time agreement, provided that such transfer of hours was for a period of not less than six months. This transaction was known as sale of looms hours by one member to another. Under such agreement, the assessee purchased loom hours from four different jute manufacturing concerns and paid a sum of Rs. 2,03,255 during the relevant year and claimed deduction of this amount as revenue expenditure on the ground that it was part of the cost of operating looms, which constituted the profit-making apparatus. It was in those circumstances that the question was considered by the hon'ble Supreme Court and it was held in para 8 that there is no all embracing formulae which can provide a ready solution to the problem; no touchstone has been devised. Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation, in respect of which the expenditure has been incurred. Then, it proceeded to refer to few tests formulated by the courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in favour of the assessee. The hon'ble Supreme Court at page 552 observed that "there are numerous decisions of this court, of the High Courts in the country, as well as of the courts in England, dealing with the controversy whether an item of expenditure should be considered as a capital expenditure or revenue expenditure". It was held that the line that divides revenue expenditure from capital expenditure is often times very thin. Hence, the decisions of courts have not been able to give a quietus to the controversy as to whether an item of expenditure is capital or revenue. The general tests to be applied to distinguish capital expenditure from revenue expenditure have been enunciated in various decisions. However, the difficulty arises when the courts are called upon to apply those tests to a given set of facts. Barring rare exceptions, the facts of no o cases are similar. With this caption, after referring to a few English cases and the judgment of the Calcutta High Court in Anglo-Persion Oil Co. (India) Ltd. v. CIT reported in [1933] 1 ITR 129, wherein money was paid by an oil company in a lump sum, as compensation for loss of agency, whereby the company relieved itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he managing director should be paid in accordance with the resolution by the company and that Davids should arrange to terminate the services of all employees with effect from March 31, 1956, and also to arrange that all directors (including the managing director) resign their offices and Tatas or their nominees should thereafter be entitled to appoint or elect all or any of the members of the staff and directors of the company as they deem fit. On those facts the hon'ble Supreme Court held that since the amount was laid out wholly and exclusively for the purpose of the business of the appellant, there was no reason for denying the benefit of section 10(2)(xv), which corresponds to section 37. It was found that the appellant-company continued to function even after its control passed on to the Tatas and the expenditure in question was laid out for the purpose of the company's own trade and not for the trade of Tata's who were only its shareholders. As a result of the expenditure, the appellant-company was in fact benefited by reduction in its wage bill and the sum of Rs.1,27,511 was expended by the appellant on the ground of commercial expediency and in order indirectly to facilita ..... X X X X Extracts X X X X X X X X Extracts X X X X
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