TMI Blog1981 (7) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. On the option of purchase being exercised by the Board, it (the undertaking) stood vested in it (the Board). The industrial undertaking was transferred from the assessee to the Punjab State Electricity Board on the midnight of 23rd and 24th of April, 1965. The assets of the assessee-company were tentatively valued at Rs. 21,74,333. The assessee was not satisfied with the valuation and the matter was ultimately referred to arbitration. The relevant previous year ended on 31st of March, 1966. During that year the assessee was paid Rs. 9,50,000 on account of the transfer of the industrial undertaking. The assessee, though no longer doing the business of electric supply, continued to maintain an establishment and incurred an expenditure on account of salary of the managing-director, telephone, travelling allowances, etc. During that period, the assessee returned a loss of Rs. 1,52,120. The ITO framed the assessment and assessed the assessee to a total income of Rs. 11,50,250. The main points of controversy, which are before us, besides others, as referred below, arose between the assessee and the revenue. The first point is regarding Rs. 75,317, which the assessee expended during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 256(1) of the Act: " Whether, on the facts and in the circumstances of the case and in accordance with the provisions of law, the Tribunal was justified in holding that a sum of Rs. 3,62,390 received by virtue of the proviso to section 7A(4), the Indian Electricity Act, by the assessee is not a capital receipt and forms part of the sale price ?" The Tribunal did not agree with the assessee on this point and refused its prayer. The assessee filed Income-tax Case No. 21 of 1977-Ambala Cantt. Electric Supply Corporation Ltd. v. CIT with a prayer that the Tribunal be directed to refer the question to this court for a decision. This is how these References Nos. 92 to 94 of 1976 and Income-tax Case No. 21 of 1977 are before us. As all these references and the Income-tax Case No. 21 of 1977 arise out of the same case between the parties, they shall be decided together. Rs. 75,317 are claimed by the assessee as expenses of the staff, which he had to retain to see the transfer through and also to finalise the compensation regarding the assets of the assessee in the industrial undertaking transferred to the Haryana State Electricity Board. Although the management of the undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion as it has been framed by the Tribunal at the instance of the assessee. We have gone through the orders passed by the ITO, the AAC and the Tribunal and find that before these authorities the assessee had not referred to s. 48 of the Act even remotely. Since the question of the attraction of s. 48 of the Act was not raised before the I.T. authorities, they never had the occasion to consider it. The Tribunal, while hearing the appeal under the Act, no doubt, has wide powers. It was not afforded an occasion to consider the impact of s. 48 of the Act on the case. The form of the application to be submitted to the Tribunal for referring the question to the High Court is prescribed by the Act. Section 48 was not invoked for inclusion in that application. It has been raised for the first time on behalf of the assessee before this court. It cannot be said that the assessee or the persons appearing on its behalf to argue its case before the I.T. authorities were not cognizant of the provisions of s. 48. For the first question they have reclined against s. 48 of the Act for help. It was thus a case of deliberate omission in regard to the utilization of s. 48 of the Act in regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation Co. Ltd. [1961] 42 ITR 589, a question of law can be said to arise out of the order of the Tribunal only if it is dealt with by the Tribunal or is raised before though not decided by the Tribunal and a question of law not raised before the Tribunal and not dealt with by it in its order cannot be said to arise out of its order, even if on the facts of the case stated in the order the question fairly arises." In this case, the Supreme Court did not permit the raising of the question, which was not raised before the Tribunal. The question now raised by Mr. B. S. Gupta falls under category 4 of the observations of the Supreme Court, quoted above from Scindia Steam Navigation Company's case [1961] 42 ITR 589, as it was not raised before the I.T. authorities or the Tribunal, nor was it considered by them. The mere fact that from the facts of a case by the application of s. 48 of the Act relief could be claimed by the assessee, it does not enable this court to recast the question to suit the interest of the assessee. This court, acting in a limited jurisdiction of advisory nature, cannot step beyond the limits of the questions referred to it by the Tribunal to reframe or recas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciate the rival contentions and points involved in the case, a reference to ss. 25F and 25FF of the Industrial Disputes Act has become unavoidable. These run as under: " 25F. No workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until (a) the workman has been given one month's notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice: Provided that no such notice shall be necessary if the retrenchment is under an agreement which specifies a date for the termination of service. (b) the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months; and (c) notice in the prescribed manner is served on the appropriate Government or such authority as may be specified by the appropriate Government by notification in the Official Gazette. 25FF. Where the ownership or management of an undertaking is transferred, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " have been suggested by Mr. Awasthy to mean a little before the actual transfer of the industrial undertaking. In his view these words do not postulate any prior time much less a period of one month or more. When a notice is to be issued in accordance with the provisions of s. 25F of the Industrial Disputes Act, it cannot be any notice short of one month. If one month's notice is to be given at the actual time of transfer or a few minutes or a few hours before that, then, in our view, it will be only an exercise in futility. It will lead to the swelling of the expenses of the transferor adding to his loss on the transfer of the undertaking. Section 25FF is a provision incorporated for the mutual benefit of the employers and the workmen. If the termination of the workmen had come about by the actual transfer, there being no obligation for the transferee to absorb them, the retrenchment compensation becomes payable because of such termination and it had to be paid by the transferor, that is the assessee, because of the provisions of s. 25FF. If the assessee had paid cash retrenchment compensation to the workmen at 11.55 p.m. on 23rd of April, 1965, being certain of the transfer of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductions can be claimed under the I.T. Act, then it can reap the benefit of that. The transferor of the undertaking, when the control of management still vests in it, can create that liability, which, though based on legal fiction, is real and effective and can take steps to minimise his losses by issuing retrenchment notices as provided by s. 25FF of the Industrial Disputes Act. The language of the principal clause of s. 25FF makes it clear that if the right of the retrenchment compensation accrues to the workman, then, it must be a right to receive compensation from the employer, who was its (undertaking's) owner uptil the date and time of transfer. The only thing to be guarded against is that the retrenchment should not be by way of punishment, but in anticipation of a transfer. In view of this matter, we are of the opinion that s. 25FF of the Industrial Disputes Act, which governs the industry gives a right to the transferor to take a pre-emptive action to minimise his expenses by giving an advance retrenchment notice to the workmen synchronising with the time of the transfer. The foundations of the arguments addressed on behalf of the revenue, as noticed earlier, are ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder any obligation to pay retrenchment compensation to the workman. The obligation to pay compensation becomes definite only when there is retrenchment by the-employer, or when the ownership or management of the undertaking is, except in the cases contemplated by the Proviso, transferred to a new employer, and not till then. The right, therefore, arises from determination of employment, or from transfer of the undertaking : it has no existence before these events take place " The question posed by the Supreme Court for answer in Gemini's case [1967] 65 ITR 643 was noted at p. 649: " The question that falls to be determined is whether the liability which arises on transfer of the business is to be regarded as a permissible outgoing in the account of the business which is transferred." The question quoted above was decided by the Supreme Court on the facts of that case without expressing any opinion whether the workmen had become entitled to retrenchment compensation on the transfer of the undertaking to Walter. The case was covered by the proviso to s. 25FF. The facts of Gemini's case [1967] 65 ITR 643 (SC) are different from the facts of the case in hand. The transfer of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot draw any support from this case and the majority of the members of the Tribunal, in our view, were not correct to interpret this judgment in the way in which they have done. The other case on which Mr. Awasthy has very heavily reclined is the judgment of this court in Modi Electric Supply Company's case [1980] 126 ITR 403. The facts in Modi Electric Supply Company's case, to some extent, were similar to the one in hand. That company also worked under a licence issued under the 1910 Act, which had expired on the midnight of 7th and 8th of June, 1963. On that date, the industrial undertaking was taken over by the Punjab State Electricity Board. The Modi Electric Supply Company issued notices to its workmen under s. 25FF of the Industrial Disputes Act, in accordance with s. 25F of the same Act. It claimed Rs. 39,341 , which it had paid to its workmen as retrenchment compensation as an allowable deduction. The Tribunal, at the instance of the Modi Electric Supply Co., referred the following question to this court: " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 39,341 representing retrenchment compensation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation accrued under the Industrial Disputes Act, 1947. Our electricity undertaking was closed down on 7th June, 1963, consequent upon the expiry of our electric supply licence. We did not transfer the services of any employee of the undertaking to the Punjab State Electricity Board who took over the undertaking. We had given notice of retrenchment under section 25F of the Industrial Disputes Act to each and every employee of the company.'" Again at p. 29 of the paper book, from the order of the Tribunal, it is to be found: " As far as the claim for retrenchment compensation was concerned, it was pleaded by the assessee-company that the services of the employees had been terminated because of the notice of the company dated May 6, 1968, and the compensation was payable under section 25FF of the Industrial Disputes Act, 1947." It is thus clear from the records of this case (Modi Electric Supply Co.) that it had taken the plea of s. 25FF, which deals with the closure of the business of the industrial undertaking and not s. 25FF. Section 25FF of the Industrial Disputes Act specifically deals with the transfer of the industrial undertaking. Closure of the undertaking and transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not capable of being assigned a limited meaning. At least one thing, to our mind, is certain in this context, that the things done to cut down the losses, when the business is still running are for the purpose of the business. The provisions of s. 25F and 25FF of the Industrial Disputes Act, which are for the mutual benefit of the employer and the workmen, are to be liberally construed. These provisions give a right to the employer to take steps to avert the loss even if the steps result in the maximising of the expenses. If such a step under s. 25FF of the Industrial Disputes Act is taken, as in this case, during the continuation of the business but before the actual transfer, when the assessee is still the owner of the industrial undertaking, under the operation of law, then the amount expended by way of retrenchment compensation will be covered by s. 37 of the Act. It cannot be disputed that the assessee has a right to minimise the incidence of the tax by legitimate means. The steps taken by the assessee in this case in anticipation of the transfer, the date of which was definite, can at the most be said to achieve these objects. The Industrial Disputes Act gives him this ri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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