9911796707
|
Home
Issues:
Interpretation of retrenchment compensation as allowable expenditure under section 37 of the Income-tax Act, 1961. Analysis: The case involved a partnership firm that filed its return of income, claiming retrenchment compensation as allowable expenditure under section 37 of the Income-tax Act, 1961. The Income-tax Officer disallowed the claim, stating it was related to the closure of business, not its operation. The firm had entered into an agreement for mining activities but faced disputes with the corporation, leading to suspension of work and retrenchment of employees. The Commissioner of Income-tax (Appeals) allowed the claim, stating the expenditure was incurred before business discontinuation and was statutorily imposed. The Tribunal affirmed this decision. The key issue was whether the compensation was for closure or operation of business. The High Court referred to precedents stating that retrenchment compensation is business expenditure under section 37(1) of the Act. It highlighted the social justice aspect of compensating workers and the statutory provisions under the Industrial Disputes Act, 1947. The court differentiated between accrued liability and future liability, emphasizing the deductibility of compensation for retrenchment during business continuity. It clarified that under the mercantile system of accounting, liability incurs at retrenchment, while under the cash system, it incurs at payment. The court noted that the firm followed the mercantile system and that the compensation was paid during ongoing business operations, justifying its allowability. The court dismissed the Revenue's argument on quantification of liability, stating it was not raised earlier and did not arise from the Tribunal's order. It upheld the Tribunal's decision, emphasizing that the compensation was for ongoing business activities, not closure. The court concluded that the retrenchment compensation was allowable under section 37 of the Act, in favor of the assessee. The judgment affirmed the Tribunal's decision, disposing of the reference without costs. In a concurring opinion, the second judge agreed with the reasoning and conclusion of the primary judgment, further supporting the allowability of retrenchment compensation as business expenditure under section 37 of the Income-tax Act, 1961.
|
