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- Deductibility of expenditure under section 10(2)(xv) of the Income-tax Act - Legal liability for compensation to employees upon closure of business - Interpretation of "wholly and exclusively for the purpose of such business" under section 10(2)(xv) Analysis: The case involved a reference under section 66(1) of the Indian Income-tax Act concerning the deductibility of an expenditure of Rs. 37,043-15-0 paid to employees upon the closure of a bank branch. The primary issue was whether this expenditure qualified as an allowable deduction under section 10(2)(xv) of the Act. The counsel for the assessee focused on the scope of section 10(2)(xv) as section 10(2)(x) was deemed inapplicable to the case. The key consideration was whether the payment was laid out or expended wholly and exclusively for the purpose of the business, profession, or vocation as per the Act's provisions. The judgment delved into the legal liability aspect, analyzing whether the payment to employees was a mandatory requirement under the law. It was observed that the payment was made as compensation for terminating services due to the bank's closure, and no legal obligation was cited that mandated such compensation. The principle of "social justice" was discussed, emphasizing that it is a philosophy rather than a legal requirement. The Industrial Disputes Act provisions were examined, concluding that the closure of the bank did not fall under the purview of section 25-FFF, making the payment a gesture of generosity rather than a legal mandate. Furthermore, the interpretation of the phrase "wholly and exclusively for the purpose of such business" under section 10(2)(xv) was crucial. Legal precedents and expert opinions were cited to elucidate the scope of this provision. The judgment highlighted that expenditures incurred at the time or for the purpose of closing the business cannot be considered as being for the purpose of the business itself. Drawing from relevant case law, it was established that the expenditure in question, related to the closure of the business, did not meet the criteria for deduction under section 10(2)(xv). In conclusion, the reference was answered in the negative, favoring the revenue. The assessee was directed to pay the costs of the revenue in the case, including the advocate's fee. The judgment meticulously analyzed the legal provisions, precedents, and interpretations to determine the deductibility of the expenditure under section 10(2)(xv) of the Income-tax Act, ultimately ruling against the assessee.
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