TMI Blog1984 (4) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... ranches at Cuddalore and Kallai. The firm decided to close down its business and entered into an agreement with its employees agreeing to pay them gratuity in a sum of Rs. 21,179, retrenchment compensation of Rs. 22,993 and notice pay of Rs. 3,204, totalling in all Rs. 43,376. The said amount was credited to the various employees' accounts and there was a corresponding debit entry in the profit and loss account for the assessment year 1973-74. The firm claimed the said amount of Rs. 43,376 as deduction in the computation of its business income. The ITO disallowed the said sum on the ground that it was not deductible under s. 36(1)(v) of the I.T. Act. The assessee took the matter in appeal to the AAC who had held that the provisions of s. 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the business of the assessee cannot be held to be business expenditure and, therefore, they are not deductible. In this reference, the assessee is challenging the decision of the Tribunal holding that the retrenchment compensation and notice pay are not allowable expenditure. As already stated, during the assessment year 1973-74, the closure of the business did not take place, but the closure of the business took place only in the next year. But what the assessee has done is that it took decision to close down the business and entered into an arrangement with the workmen for payment of retrenchment compensation and notice pay and it credited the amounts due to the workmen under both accounts in their accounts and debited the same in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensation arises only after the closure of the business and not when the firm is actually carrying on the business and as such the same cannot be allowed as a business expenditure. The Supreme Court has pointed out that the obligation to pay compensation becomes definite only when there is retrenchment by the employer and, therefore, the right to receive the retrenchment compensation by the workmen arises from the determination of employment and that, therefore, the said amount cannot be taken to be an outgoing of the business and as such debitable in the profit and loss account. The Supreme Court observed as follows (p. 650): " A deduction which is proper and necessary for ascertaining the balance of profits and gains of the business is u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming that the closure of the business took place in the year of account, still on the basis of the decision of the Supreme Court, the claim cannot be allowed as the said expenditure cannot be said to be a business expenditure, for the liability to pay the retrenchment compensation arose after the closure of the business and not while running the business. In any view of the matter, the Tribunal has come to the right conclusion in this case in disallowing the claim for deduction of the amounts of the retrenchment compensation and the notice pay. Learned counsel for the assessee then points out that during the assessment year in question, the assessee closed down only a part of the business and not the whole of the business and that the who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis that the assessee's business as a whole was closed in the next accounting year, we are not in position to proceed on the basis that the assessee closed down a part of the business in the assessment year 1973-74 and the rest of the business was closed in the next assessment year 1974-75. According to the learned counsel for the assessee, the statement of the case filed before this court by the Tribunal has normally to be looked into for the purpose of finding out facts, and in this case when the statement of the case says that the assessee's-firm closed down a part of the business in the accounting year relevant to the assessment year 1973-74, that fact cannot be overlooked merely because the Tribunal has not referred to that fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
