TMI Blog2010 (3) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) Headquarters Mumbai ₹ 48,18,831/- 4. This expenditure was claimed as defered revenue expenditure in the books of account whereas the assessee claimed the full amount under M/s. Foseco India Limited section 37(1). The A.O. disallowed the same holding it as capital expenditure and the CIT(A), after considering the issue, confirmed the amount pertaining to Jammu and Jamshedpur Units whereas he allowed the amount on behalf of Head Office. It was assessee's contention that the entire amount is allowable as revenue expenditure. 5. The facts leading to the present issue are that during the earlier year the assessee has paid amounts towards expenses of Calcutta Unit, which was closed during this year whereas the assessee has paid amounts for Jamshedpur and Jammu Units during the year, which were in fact closed in the next year. It was Assessing Officer's contention that these units are independent businesses of the assessee and assessee has separately claimed deduction under section 80HH and so expenditure on closure of business unit is capital in nature and did not allow the expenditure. It was assessee's contention that the assessee has reorganised the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there may be cases where expenditure even if incurred for obtaining an advantage of enduring benefit may, nonetheless, be on revenue account. (c) Sassoon J. David Co. Pvt. Ltd. vs. The CIT - 118 ITR 261 (S.C.). The Court held that it is too late in the day now, whatever may have been the position two decades ago to treat the expenditure incurred by a management in paying reasonable sum by way of gratuity, bonus, retrenchment compensation or compensation for termination of service as not business expenditure. (d) Assam Oil Co. Ltd. vs. CIT (154 it 647). Held: - That it was conclusively established that the assessee's business in which the disputed payments were made did not come to a close and that the assessee made such payments in order to effect economy and rationalisations of its personnel. No assets of enduring nature came into existence by reason of the payments though benefits accrued to the assessee thereunder, which would constitute not only for one year but in future years. (e) George Oakes Ltd. vs. The CIT (1992) 197 ITR 288 (Madras) Held: - The payment was only to contain the loss, reorganize the branch by reducing the staff and to bring about a reduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred in 1983 and 1988 with new factories established in Jammu in the North of the country, in Pondicherry a union territory in south of India Thus the different units of the company were set up to meet the demands of the local customers of that area and all the units functioned independently and were not dependent upon each other for their manufacturing and sale. 6.4 In order to decide the allowability of expenditure it is necessary to see whether the closed units from part of the same business that continued to exist or whether the closed units amounted to separate venture. In this respect, the decision in the case of L.M. Chhabda Sons vs. CIT 65 ITR 683 (SC) is relevant wherein, it has been held that whether different ventures carried on by the assessee form parts of the M/s. Foseco India Limited same business must depend on the facts and circumstances of each case. It is for the assessee to establish that different ventures constitute parts of the same business. Only because an assessee is carrying on business ventures of the same character at different places, it is not necessary that ventures are part of the same business. In determining whether different ventures may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its at Calcutta, Jammu and Jamshedpur the installed capacity and actual production was substantially reduced. This is evidenced from the following details: F.Y Licensed Installed Actual Production Production (Outside) (own) (Tonnes) 1997-98 36,687 42,961 32,059 Nil 1998-99 43,687 31,786 31,226 Nil 1999-00 42,724 23,810 14,120 11,918 2000-01 42,724 23,810 8,643 8,318 2001-02 42,724 24,380 9,771 6,613 Thus the assessee reduced the size of its business and not merely reduced the workforce to make the business more profitable. 6.10 It is also seen from the proposal submitted to the Board of Directors that range of products manufactured were substantially narrowed down and restricted to resins, coatings and precision sleeve for foundry and AFAX granular and power fluxes for steel. It is also seen that after the closure of units the assessee increased its trading activities. In the F.Y. 1997-98 the trading turnover was 3.27 crores which increased to ₹ 17.27 crores in 1999-2000 and ₹ 17.48 crores in 2000-01. 6.11 It is also seen that the assessee had completely closed down these units as the entire plant and machinery were scrapped and sold. The land which was a lease-ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered a temptation for the older employees to retire from service. The voluntary retirement scheme has not been challenged as mala fide by the unions. We are in agreement with the view of the Tribunal that the payment of compensation to induce the workmen to retire prematurely was an item of expenditure incurred by the company on the ground of commercial expediency in order to facilitate the carrying on of the business and it was an expenditure allowable under section 37(1) of the Income-tax Act. It was not an expenditure of a capital nature. The Tribunal was justified in declining to add back this item of expenditure to the gross profits. Reliance is also placed on the decision of the jurisdictional High Court in the case of CIT vs. Bhor Industries Ltd. wherein referring to the decisions of the Hon'ble Supreme Court in the case of CIT vs. Ashok Leyland Ltd. 86 ITR 549 and Empire Jute Co. Ltd. vs. CIT 124 ITR 1, it was held that the VRS expenses were incurred by the Company to save on the expense. This expense was not referable to any income-yielding asset. It is well settled that, ordinarily, revenue expenditure, which is incurred wholly and exclusively for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 261 (SC) Assam Oil Co. Ltd. 154 ITR 647 (Cal) George Oaks Ltd. 197 ITR 288 (Mad) Machinery Manufacturing Corporation Ltd. 198 ITR 550 (Cal) India Cable Company (AIR 1982 SC 219) Bhor Industries Ltd. 128 Taxman 626 (Bom) Medley Pharmaceuticals Ltd. 109 TTJ (Bom) Margarine and Refined Oils Co. 282 ITR 576 (Kar) MGF India Ltd. 272 ITR 191 (Del) Jayshree Tea and Industries Ltd. 272 ITR 193 (Cal) Ravindranathan Nair 247 ITR 178 (SC) PI Industries Ltd. 106 ITD 401 (Jodh) 8. The learned D.R., however, referred to the detailed order of the CIT(A) and submitted that these units are independently functioning and the Jamshedpur Unit has claimed 80HH as a separate business and accordingly the expenditure is capital in nature. 9. We have considered the issue. The assessee is in the business of manufacturing of various metallurgical products for a long period and various manufacturing units have been closed and other units have been continued. In fact the scrapping of machinery and closure of units happened in later year and assessee has continued servicing the clients by outsourcing the requirement of materials earlier manufactured. Not only that the assessee as part of restructuring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company. There is no denial of the fact that the assessee is continuing the manufacturing activities of the same products elsewhere and catering to the same clientele. The facts are similar to the facts considered by the Hon'ble Supreme Court in the case of K. Ravindranathan Nair vs. CIT 247 ITR 178 which the CIT(A) tried to distinguish in para 6.13. Whether it is a labour problem or a part of restructuring of the business due to various other factors, the fact is that assessee's business is spread over India in various units and out of these units the assessee has closed two units during the year. In view of this the expenditure paid to the employees of the erstwhile units for the purpose of voluntary retirement can only be considered as an expenditure incurred in the course of business. For the purpose of continuing its business, the assessee had to reduce the number of units and also relocate some of the business to Pune. Incidental expenses incurred in restructuring the business has to be considered as expenditure incurred in the course of conducing the business and allowable under section 37(1). 11. We do not see any reason to distinguish the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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