TMI Blog1991 (7) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... he said amount on the ground that the provision was made on account of the retrenchment of these employees due to closure of the firm and considering their past services. The Income-tax Officer considered the said claim of the assessee under section 40A(7)(a) and (b) of the Incometax Act, 1961 (hereinafter referred to as "the Act"), and held that no such deduction was allowable to the assessee. In its appeal before the Appellate Assistant Commissioner, it was contended by the assessee that, though the payment was described as gratuity, it was not by way of gratuity but was compensation for the termination of the services of the employees of the firm. It was, in terms, contended that there was a statutory obligation on the assessee to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees of the firm should have been remunerated adequately in this manner. On being specifically asked as to whether there was any liability to pay gratuity, learned counsel for the assessee conceded before the Tribunal that the provisions of the Payment of Gratuity Act were not applicable to the assessee and that there was no gratuity scheme adopted by the assessee-firm. It was, however, contended that the deduction of the remaining sum of Rs. 22,700 may be allowed as retrenchment compensation or gratuity or some extra payment to the employees for meritorious service on the ground of commercial expediency. On the other hand, it was submitted on behalf of the Revenue that the Appellate Assistant Commissioner had gone wrong in allowing the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed down its business from November 13, 1974, and due to the closure, the services of all the six employees of the firm were terminated. The assessee had made provision of Rs. 74,500 in the gratuity account, but it was its consistent stand that the amount was intended to be paid by way of compensation for their retrenchment from service, which resulted due to closure of the firm. Admittedly, the provisions of the Payment of Gratuity Act were not applicable to the assessee-firm and it never had adopted any scheme of gratuity for its employees. Before the Appellate Assistant Commissioner, the assessee, in terms, contended that the said amount was provided for by way of retrenchment compensation for its employees in view of the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62] 46 ITR 278 (Mys), where, on account of closure, salary for two months for each year of service by way of compensation for termination of their services was paid to the employees of the assessee as a gesture of generosity, it was held that such expenditure cannot be said to have been incurred for the purposes of the business of the assessee as the business was closed and was, therefore, not allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922. In J. K. Cotton Manufacturers v. CIT [1952] 21 ITR 129 (All), the assessee, a private limited company, had gone into voluntary liquidation and, by a subsequent resolution, approved and confirmed payment of sum of Rs. 10,000 to the ex-director in recognition of his past services to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said that the retrenchment compensation is paid for the purpose of the business. In our view, therefore, the Tribunal was right in holding that the compensation payable by the assessee to its employees, in view of the provisions of section 25FFF of the Industrial Disputes Act, could not be said to be an expenditure incurred for carrying on the business or an expenditure laid out wholly and exclusively for the purpose of business. The Tribunal rightly relied upon the decision of the Supreme Court in Gemini Cashew Sales Corporation's case [1967] 65 ITR 643 for holding that the assessee was not entitled to any such deduction. In this view of the matter, we answer the question referred to us in the affirmative and against the assessee. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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