TMI Blog1976 (10) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 1967-68 are not admissible under section 37(1) or section 28(i) of the Income-tax' Act, 1961 ? " (T.C. No. 421 of 1971). " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the two sums of Rs. 16,560 and Rs. 3,884 claimed as a deduction in the computation of the business income of the assessee for the assessment year 1967-68 are not admissible under section 37(1) or section 28(i) of the Income-tax Act, 1961 ? (T.C. No. 422 of 1971). Though there are two references and two questions have been referred to this court, the point involved is the same. The assessee in T.C. No 422 of 1971 is a partnership firm consisting of three partners, namely, P. G. Balasubramaniam, R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant Commissioner and the Income-tax Appellate Tribunal have rejected this claim and hence the present reference to this court in the two tax cases at the instance of the assessees. We are of the opinion that the conclusion of the authorities as well as the Tribunal is correct in law. The scheme of the relevant section of the Industrial Disputes Act will make it clear that the amount was payable only on the closure of the business. Section 25-F deals with the conditions precedent to retrenchment of workmen on the basis that the business continues. Section 25-FF deals with compensation to the workmen in the case of transfer of undertaking. Though the particular context or event that attracts liability to pay compensation is different, stil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessees wanted to close the business on April 10, 1967. But they actually closed the business on July 15, 1967, only. From what we have pointed out with reference to section 25FFF, the liability is one arising on the closure of the business. If we may say so, the closure of the business and the accrual or arising of the liability to pay the compensation are concurrent and, therefore, from the point of view of time, one cannot be separated from the other. If so, the compensation payable under section 25FFF cannot be said to be an expenditure incurred by the assessees for carrying on the business or an expenditure laid out wholly and exclusively for the purpose of the business. As a matter of fact, this is an expenditure which the assessees i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of the business, himself terminate the employment: he may die or he may become superannuated: in none of these cases the owner of the business is under 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 gases 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 ... Normally the liability which occurs after the last date, unless its source is in a pre-existing definite obligation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation during the time that the business is carried on, it cannot fall within the expression 'expenditure laid out or expended wholly and exclusively' for the purpose of the business." In the sentence in the judgment of the Supreme Court underlined by us, if the word " closure " is substituted for the word " transfer ", namely, " a deduction which is proper and necessary for ascertaining the balance of profits and gains of the business is undoubtedly properly allowable, but where a liability to make a payment arises not in the course of the business, not for the purpose of carrying on the business, but springs from the closure of the business, it is not, in our judgment, a properly debitable item in its profit and loss account as a revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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