TMI Blog1975 (12) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... is business for a number of years on a large and substantial scale. There was another firm carrying on similar business known as Volkart Brothers. In 1961 negotiations were carried on by the assessee-company for taking over business in cotton and cotton waste of Volkart Brothers, and such negotiations had reached an advanced stage in the first half of 1961. A preliminary agreement was arrived at between the assessee and the said firm on 31st May, 1961. This was followed by a formal agreement which was entered into on 23rd October, 1961. The business in cotton of Volkart Brothers was taken over from 1st September, 1961. Under the agreement dated 23rd October, 1961, 1,300 shares of Rs. 500 each were to be allotted to Volkart Brothers or their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for the year 1962-63, the assessee claimed deduction of the sum of Rs. 1,45,844 paid as such gratuity to its employees, but the claim was rejected by the Income-tax Officer on the ground that the compulsory retirement or retrenchment of the staff was occasioned by or was directly relatable to the acquisition by the assessee of the new business, that it was done as part of the terms for purchase of the new business, and that it was nothing but a part of the purchase consideration. According to the Income-tax Officer, the expenditure was capital in nature and not allowable as deduction. It was further held that it was not incurred in the interest of the existing business but only of a new business to be acquired by the assessee. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in paragraph 7 of the statement of the case : (1) The assessee was carrying on an identical business and there was nothing to show that the business taken over was run as a separate and an independent business. The contention of the department that there was an acquisition of a wholly new business is not correct to the fullest extent. The said business merged in that of the assessee and there was no separate business carried on by the assessee so as to distinguish the said business taken over from Volkart Brothers from the existing business of the assessee. (2) By the year end (i.e., 31st August, 1961), the business of Volkart Brothers had not been taken over. The taking over was only subsequent. The assessee had paid gratuity only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment amongst them. It is on these findings that the Tribunal held that the allowance of Rs. 1,45,844 given by the Appellate Assistant Commissioner was fully justified. It is clear to me that in view of these findings of the Tribunal the question referred to us is required to be answered in favour of the assessee. A reference may, however, be made to certain authorities to which our attention was drawn by the counsel. The Supreme Court had an occasion to consider the question whether the amount paid as gratuity to an employee or director on retirement is allowable as expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, in Gordon Woodroffe Leather Manufacturing Company v. Commissioner of Income-tax [1962] 44 ITR 551 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, one of the pertinent factors being, in the view of the court, that there was no practice of payment of gratuity and no legally enforceable claim for such payment against the company. Both decisions were considered and the decision in Gordon Woodroffe Leather Manufacturing Co.'s case [1962] 44 ITR 551 (SC) was applied by the Madras High Court in Balarama Varma Textiles Ltd. v. Commissioner of Income-tax [1973] 92 ITR 485 (Mad). In the Madras case the payment was not allowed, inter alia, on the footing that there was no material to show that the decision to pay the amount as gratuity to the employees in question had been taken even during the currency of their employm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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