TMI Blog1997 (4) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... tence and, therefore, the expenditure was on account of genuine needs. It was emphasised that for prevention of loss being incurred by the assessee at Allahabad unit, the company was compelled to retrench its workers and, therefore, compensation was payable out of commercial expediency. The assessee placed reliance on the decisions in the cases of Sassoon J. David Co. (P.) Ltd. v. CIT [1979] 118 ITR 261/1 Taxman 485 (SC), CIT v. Assam Oil Co. Ltd. [1985] 154 ITR 647/23 Taxman 113 (Cal.) and CIT v. P.I. Simon [1991] 187 ITR 302/56 Taxman 224 (Ker.). The learned CIT held that the expenditure was for the purpose of closure of assessee's manufacturing unit at Allahabad and not for the purpose of carrying on business of this unit. Hence, the expenditure could not be regarded as business expenditure. The facts of the case of Sassoon J. David Co. (P.), Ltd. related to compensation paid to an employee on termination of his appointment. It was not a case of closure compensation. The expenditure in the case of Assam Oil Co. Ltd. related to payment of compensation on rationalisation of manpower requirements. Again it was not the case of closure compensation. The facts of P.I. Simon's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hly Trust (P.) Ltd. v. CIT [1969] 73 ITR 685. Relying on the ratio of these decisions, the learned counsel of the assessee argued that closure of manufacturing unit at Allahabad was only closure of one of the units of the same business while the other units continued to be in business. 3. The learned counsel also argued that it cannot be said that the business of the assessee at Allahabad unit came to an end with closure of production. During the year only manufacturing unit was closed down but the assessee continued to carry on the business inasmuch as, the unit had considerable stock-in-trade. During the year ended 31st March, 1987 out of the total sales of over Rs. 85 lacs, the sales to the extent of about Rs. 35,64,000 was carried out by the assessee after the closure of unit. There were also certain sales of this stock in the subsequent year ended 31st March, 1988. It, therefore, cannot be said that even the business of this unit came to a halt after the closure of the unit. 4. The learned counsel of the assessee argued that the reliance placed by the learned CIT on Calcutta High Court judgment in the case of Binani Printers (P.) Ltd. was not justified because the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticed by us that there are no observations or remarks or mention of the assessee's claim of deduction of Rs. 18,40,250 on account of closure compensation at Allahabad unit. 8. From the judgment of the Hon'ble Supreme Court in the case of CIT v. Gemini Cashew Sales Corpn. [1967] 65 ITR 643, it is settled legal position now that liability to pay retrenchment compensation which arises for the first time after the closure of the business cannot be said to be arising in the course of carrying on of the business. The case of the assessee is that Allahabad unit which was closed down, was not the only business of the assessee-company but it was part of a single business comprising of several manufacturing units of numerous products located at several places in the country and, therefore, business of the assessee continued even after the closure of Allahabad unit and, therefore, the liability to pay compensation has to be seen as arising during the course of the business. As the dominant object of the closure of unit was curtailment of loss at that unit, the liability to pay compensation was incurred for the purposes of carrying on of business. Reliance has been placed by the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as entered in the accounts maintained in the Head Office, no inference necessarily arose that the exhibition of films indifferent theatres constituted the same business. The Hon'ble Supreme Court further held that there is no general principle that where an assessee carries on business ventures of the same character at different places, it must be held as a matter of law that the ventures are parts of single business ; whether, different ventures carried on by the assessee form parts of the same business must depend on the facts and circumstances of each case, and it is for the assessee to establish that the different ventures constitute parts of the same business. 10. In the case of Binani Printers (P.) Ltd., the assessee carried on two lines of business, printing and publishing. Due to heavy losses in the printing establishment it was closed down and services of all workers in the printing establishment were terminated and they were paid compensation and notice pay. The assessee, however, continued the other business, viz., the business of publication. The assessee claimed deduction of the amount paid as retrenchment compensation and notice pay. The Income-tax Officer disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or tea. The Hon'ble Madras High Court held that the deduction was available to that assessee-company only on portion attributable to income liable to tax under the Income-tax Act. 12. During the course of hearing before us, the learned counsel of the assessee has placed heavy reliance on the Supreme Court decisions in the cases of Prithvi Insurance Co. Ltd. ; BR. Ltd. ; Produce Exchange Corpn. Ltd. and Hooghly Trust (P.) Ltd. It is seen that the Hon'ble Madras High Court have in their judgment reported in Blue Mountain Estates Industries Ltd. 's case examined the legal position as emerging from these Supreme Court judgments relied upon by the assessee except the last named case of Hooghly Trust (P.) Ltd. After close examination of the legal position, the Hon'ble Madras High Court have observed as under : " The learned counsel for the assessee strongly relies on the decision of the Supreme Court in B.R. Ltd. v. V.P. Gupta, CIT [1978] 113 ITR 647, and contends that the decisive test to be applied in this case is the unity of control and not the nature of the lines of business, and that as this case satisfies the test of unity of control, it should be held that the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to above, we have to find out whether the concepts of interconnection, interlacing and interdependence are established in this case." We have perused the judgment of the Hon'ble Supreme Court in the case of Hooghly Trust (P.) Ltd. and we find that in that case their earlier decision in the case of Prithvi Insurance Co. Ltd. has been reiterated. 13. Taking into consideration the legal position explained in the judgments as mentioned in the foregoing paragraphs, it is clear to us that the test of unity of control, i.e., common management, common administration, common fund and common Head Office in itself will not signify that various lines of business carried on by an assessee constitute a single indivisible business. There have to be, in addition other tests such as, interconnection, interlacing and interdependence. As already noticed by us, the computation in this case has been made separately in respect of 21 units of the assessee as separate Profit and Loss Accounts were drawn up. It is also seen that these units have been scattered at diverse places throughout the country and dealt in diverse product or lines of business. During the course of hearing before us, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven be said that the assessee's Allahabad unit was closed down, when the liability of closure compensation was incurred. During the year only manufacturing unit was closed down, but the assessee continued to carry on the business as the unit had considerable stock-in-trade. During the year ended 31st March, 1987, large amounts of sales were made by the assessee during the period subsequent to the closure of manufacturing unit with effect from 2nd November, 1986. Even certain sales were carried out during the subsequent year ended 31st March, 1987. The learned counsel of the assessee, therefore, argued that it could not be said that the assessee's business at Allahabad was discontinued even though there was closure of the manufacturing unit. It is noticed by us that a similar argument has been considered by the Madhya Pradesh High Court in the case of Perfect Pottery Co. Ltd. v. CIT [1987] 166 ITR 196. In that case, the assessee had closed down its manufacturing business and no manufacturing business was carried on during the relevant previous year. The only business carried on during the previous year was the sale of manufactured goods which had been manufactured prior to the closu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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