TMI Blog2004 (6) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case, the Tribunal was justified in holding that the business carried out in the Allahabad unit did not constitute a part and parcel of a single business carried out by the assessee? 2. Whether, on the facts and in the circumstances of the case the Tribunal had no material to hold that there was no inter-connection, inter-lacing and inter-dependence between the various units of the assessee including the Allahabad unit and accordingly its decision was perverse? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Commissioner of Income-tax directing the Assessing Officer to disallow the sum of Rs. 18,40,250?" Respondent's objection: In the statement of case the Tribunal had referred only the third question. Relying on this Mr. Shome wanted to contend that the entire argument of Dr. Pal is wholly misplaced. Therefore, the court should rely upon only the argument advanced by Dr. Pal in relation to the third question and there is no scope for this court to intervene with regard to the questions contained in the first and second ones. The learned Tribunal records that the assessee could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not think that the first point raised by Mr. Shome is too technical. These two questions had not been referred for our opinion. Therefore, we are not supposed to dilate on that. But we are supposed to deal with question No. 3. If incidentally while dealing with question No. 3, it seems that the findings of the learned Tribunal with regard to questions Nos. 1 and 2 are to be gone into and dealt with, in that event the court is not powerless to dilate on those questions as may be found to have been decided by the learned Tribunal as the last court of finding of facts. The third question is dependent on the principle of perversity in relation to the inference drawn from the finding of the learned Tribunal with regard to the first and second questions. The question is not dependent on the denial of the approval to the closure. The third question since referred is of wide amplitude. The justification of the disallowance is to be answered. In order to find out the answer to the justification the only question we are to look into is as to whether this expenditure was incurred for the purpose of business or not; if it is held to be a business expenditure, in that event the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed that this very unit carried on trading activities even in the subsequent years. In this case, as was found by the learned Tribunal, the assessee was carrying on business through 21 units. Such business consisted of different kinds of business but all were being assessed at the hands of the assessee as one business or in other words the assessee was being assessed for the income of all the different units together at the hands of the assessee as one assessee though the accounts may be kept separately for each unit. Admittedly, in the business expediency accounts are kept for each unit separately so as to enable the assessee to find out or keep track of the fact as to whether the particular unit was running at a loss or profit; and instead of constituting separate businesses in its wisdom the assessee might carry on all the units as one business. As soon as it was found that there was unity of control and management the inter-connection and inter-lacing is to be presumed and would be apparent The very finding, that even after the closure of the Allahabad unit the business was carried on by the assessee, was itself a pointer to the oneness of the business. When the unit w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. In our view, therefore, the expenditure was bona fide and eligible to be construed to have been made for the purpose of the business. However, now, the question remains whether an amount paid for closure of a unit can be treated to be an expenditure incurred for the business. Surely, it could not if the business is closed. But if the unit is part of a business and only a unit is closed not the business then it would surely be a business expenditure. In order to establish this, we may now examine whether the Allahabad unit was a part of the one business of the assessee or a separate one. Whether the business was one or separate: Mr. Shome had relied on a decision in L.M. Chhabda and Sons v. CIT [1967] 65 ITR 638 (SC) to contend that if some business is carried on at different places, the same would not constitute a single business. If the assessee carries on several distinct and independent businesses, and one of such businesses is closed before the previous year, he cannot claim allowance, under section 10 of the Indian Income-tax Act, 1922, of an outgoing attributable to the business which is closed against the income of his other businesses. If one assessee carries on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of business, which is the concluding factor (Produce Exchange Corporation Ltd. v. CIT [1970] 77 ITR 739 (SC)). Admittedly, the finding arrived at by the learned Tribunal is a final finding of fact. Normally, the High Court cannot interfere with such finding of the Tribunal which is the last fact-finding court. But there are certain exceptions when findings of fact can be interfered with. Let us now examine the situation where findings of fact can be interfered with in exercise of the power under section 256 by the High Court and whether such circumstances do exist in the present case. Whether the findings of fact arrived at by the learned Tribunal can be interfered with by the High Court while exercising jurisdiction under section 256? The jurisdiction exercised by the High Court under section 256 of the Income-tax Act, 1961, is advisory in nature; the High Court is supposed to give its opinion on the question of law referred to it. It is a settled proposition of law that the Tribunal is the last court of findings of fact. The High Court is not empowered to interfere with the findings of fact. But it cannot be said that there is an absolute bar on the High Court with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration the legal position explained in the judgments as mentioned in the foregoing paragraph, it is clear to us that the test of unity of control, i.e., common management, common administration, common fund and common head office in itself will not signify that various lines of business carried on by an assessee constitute a single indivisible business. There have to be in addition the other tests such as, inter-connection, inter-lacing and interdependence. As already noticed by us, the computation in this case has been made separately in respect of 21 units of the assessee as separate profit and loss accounts were drawn up. It is also seen that these units have been scattered at diverse places throughout the country and dealt in diverse products or lines of business. During the course of hearing before us, the assessee has filed a detailed paper book 'which inter alia, contained the assessee's submissions before the Commissioner of Income-tax during the course of proceedings under section 263. Though learned counsel for the assessee argued that there was considerable inter-connection amongst various units of the assessee, no material in this behalf has been produced before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same would be eligible as admissible deduction under section 37. The test is whether the expenditure was incurred for the carrying on of the business. It was so held in CIT v. Gemini Cashew Sales Corporation [1967] 65 ITR 643 (SC) cited by Mr. Shome. In the said case, it was held that the liability to pay retrenchment compensation under section 25FF of the Industrial Disputes Act arose for the first time after the closure of the business; it did not arise so long as the business continued. In other words, there cannot be any liability to pay retrenchment compensation if the business continues. But in the case at hand the facts are distinguishable from those involved in Gemini Cashew Sales Corporation [1967] 65 ITR 643 (SC). Inasmuch as here in this case the retrenchment liability was not paid after the closure of the business but before the closure was permitted by the authority. The permission to close down the business was denied by the appropriate authority, which was confirmed by the judicial authority. Therefore, there was no closure of the business but the amount was spent to get rid of the employees in order to ensure prevention of loss and earning profit. By reason of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isputes Act, 1947. We have already found that the denial of approval is wholly immaterial. On the facts where the whole business was closed was held unallowable. While dealing with CIT v. Gemini Cashew Sales Corporation [1967] 65 ITR 643 (SC), the Tribunal had observed that a contingent liability arising after the closure of the business is not an allowable deduction on the analogy that liability was incurred by the employer for the purpose of closure of the business. While dealing with the case reference was made to a case by the Mysore High Court in Mysore Standard Bank Ltd. v. CIT [1962] 46 ITR 278 where payments made for termination of business as compensation, were held to be unallowable. It is now settled by law that for the purpose of business means for the purpose of enabling the assessee to carry on the business (Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265 (SC)). Retrenchment compensation and pay in lieu of notice were not payments made for the purpose of carrying on the business but for winding up or closing down the business. Therefore, such expenditure cannot be regarded as business expenditure. It must be a pre-existing liability. In Sree Meenakshi Mills Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that payment made to remove the possibility of a recurring disadvantage cannot be considered as a payment made to acquire an enduring advantage so as to be considered as a capital expenditure. Reliance was also placed on the observation of Mr. Justice Rowlatt in B.W. Noble Ltd. v. Mitchell [1927] 11 TC 372 (CA) in that case. In Heath and Co. (Calcutta) P. Ltd. [1978] 114 ITR 605 (Cal), it was held further that the assessee had a disadvantageous arrangement with Lyons (India) Pvt. Ltd. The assessee was incurring losses. The assessee wanted to get rid of the arrangement and thereby get rid of the recurring disadvantage and as a result whereof to earn profits. The amount in question was paid to the employees, who had worked in part for the assessee. If they were the employees of the assessee then in case of termination or retrenchment, the assessee would have been liable to pay them retrenchment compensation and such payment would have been indisputably allowable as deduction. Therefore, in the perspective of a prudent businessman for facilitating carrying on of its business and for having a smooth running of the work and maintaining the goodwill for the business, if the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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