TMI Blog2000 (1) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... wanoo, Concrete Pole Unit, Parwanoo and Nahan Hosiery at Nahan. It was claimed before the AO that these units were suffering losses and had to be closed down and the deduction claimed represented the compensation paid in accordance with s. 25F of the Industrial Disputes Act, 1947. The AO accepted that the payment of compensation "was indeed a legal liability" but he opined that the expenditure not being laid out for the purpose of business was not allowable and s. 37 of the IT Act was not applicable. In other words, the view of the AO was to the effect that expenditure incurred for closing down a business could not be allowed under s. 37 and he, therefore, made an addition to the returned figures. 4. Before the CIT(A) the assessee contended that the three units of the corporation were closed down to save the corporation from suffering continuous losses. By drawing attention to s. 25F of the Industrial Disputes Act, 1947, the learned counsel contended that the liability to pay compensation was a statutory liability and, therefore, clearly allowable under s. 37 of the IT Act, 1961. According to the learned counsel, in case the compensation was not paid by closing the various units, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 : (1995) 211 ITR 515 (Kar) at p. 518. As regards notice pay, the learned counsel stated that this also was a statutory liability. The further submissions of the learned counsel were to the effect that in a case where a number of units were working, then even if one of them was closed down, the aforesaid amounts became payable in the light of the specific provisions of the Industrial Disputes Act, 1947. Accordingly to him, the closure of three units resulted in the retrenchment of some of the staff members the net result being to arrest the continuous losses and reduce the wage bill and this, therefore, represented expenditure for purposes of business and, therefore, allowable under s. 37(1). In support of the earlier arguments as also the aforesaid, the learned counsel placed reliance on the following decisions: (i) Sassoon J. David Co. (P) Ltd vs. CIT (1979) 10 CTR (SC) 383 : (1979) 118 ITR 261 (SC); (ii) B.R. Ltd. vs. V.P. Gupta, CIT 1978 CTR (SC) 82 : (1978) 113 ITR 647 (SC); (iii) CIT vs. Diesel Engineer (1998) 149 CTR (Mad) 146; and (iv) CIT vs. P.I. Simpon (1991) 56 Taxman 224 (Ker) [considering 113 ITR 647 (SC)] 5.2. The further submission of the learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineering Works (P). Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) at p. 320. The further submission was to the effect that the various units in the assessee's case were not interconnected as they carried on different unconnected activities. 7. In reply the learned counsel for the assessee at the outset referred to p. 14 of his compilation contending that the details given therein were already available with the AO and nothing new was placed on the record. As regards the decisions relied upon by the learned Departmental Representative, the learned counsel stated that these were distinguishable as they related to complete closure of business and not closure in part. The controversy, according to the learned counsel, was whether the total expenditure was allowable or not and it was in this connection that different face of the controversy could be raised at any stage of the proceedings. 8. We have examined the rival submissions and have also perused the orders passed by the tax authorities. The decisions cited at the Bar have also been duly considered. It is apparent that the tax authorities have taken a view that the expenditure laid out for closing down a business canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied the judgment of the Hon'ble Supreme Court in the case reported in (1998) 145 CTR (SC) 360 : (1998) 230 ITR 643 (SC), which has been referred to at length by the learned counsel during the course of the hearing of the present appeal. It is also noticed by us from a reading of the aforesaid decision of the Hon'ble Supreme Court that their Lordships have distinguished the decision of the same Court (1967) 65 ITR 643 (SC) in CIT vs. Gemini Cashew Sales Corporation, which has been applied by the Hon'ble Calcutta High Court in the case. Binani Printers (P) Ltd. vs. CLT (Cal), supra, a decision relied upon by the learned Departmental Representative in support of the Revenue's case. In the decision B.R. Ltd. vs. V.P. Gupta, CIT), the question was once again of common management and common control of businesses as in that case the assessee had closed down its import business in one year and commenced export business in the next year. The issue before the Court was whether the loss in import business could be set off against the profit in export business. Their Lordships of the Hon'ble Supreme Court took the view that the loss was allowable in view of common management and common cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1998) 145 CTR (SC) 360 : (1998) 230 ITR 643 (SC). The decision relied upon in 1977 CTR (Mad) 262 : (1977) 108 ITR 309 (Mad), is distinguishable as this pertains to a business which was closed down as a whole and not in part and, therefore, not applicable to the facts of the present case. The learned Departmental Representative also relied on the decision of the Hon'ble Allahabad High Court in the case of CIT vs. Swadeshi Cotton Mills Co. but we do not really understand the relevance of this judgment to the point at issue. It may not be out of place to mention that at one time during the course of the hearing the learned Departmental Representative contended that every decision cited had to be considered on its own facts and for this proposition he placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT vs. Sun Engineering Works (P). Ltd. at p. 320. In deciding the present appeal we have kept in focus the aforesaid decision and discussed in the earlier part of the order each of the decisions cited by the parties considering their applicability or otherwise. 8.4. During the course of the hearing the parties referred to the relevant provisions of the Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the learned counsel, pertains to payment of gratuity and not compensation. In other words, the relevant provisions of the Industrial Disputes Act, 1947 would also have to be referred to in order to decide whether any part of the payment was over and above the provisions of that Act and if so, what would be the effect of such a payment vis-a-vis the provisions of the IT Act. 8.6. Another important fact which is required to be highlighted and which apparently has not been considered by the tax authorities is the note appended by the assessee to the statement of assessable income/loss which states that a sum of Rs. 6.91 lacs was made available by the Himachal Pradesh Government to the Corporation to pay off the terminal benefits to the workers retrenched. Even in the letter addressed to the AO on 6th July, 1992, this fact has been stated in the last para. In case the funds for making the payment of the retrenchment compensation have been provided by the State Government to the assessee, then it becomes necessary on the part of the Department to examine the effect of the same on the assessee's claim for deduction even if the same is found to be tenable on merits as argued by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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