9911796707
|
Home
Issues:
Assessment of retrenchment compensation and gratuity deduction for an unregistered firm for the assessment year 1975-76. Analysis: The original respondent, an unregistered firm, was assessed for the assessment year 1975-76. The firm closed down its business, retrenched employees, and paid retrenchment compensation and gratuity. The Income Tax Officer disallowed the deduction of these amounts as they were paid on the closure of the business and not wholly and exclusively for business purposes. The Commissioner of Income tax (Appeals) and the Appellate Tribunal upheld this decision regarding retrenchment compensation but differed on the gratuity deduction. The Appellate Tribunal considered gratuity as a liability that accrued to the employer earlier and allowed its deduction based on the Full Bench decision of the court in a similar case. The Revenue filed a petition to refer the question of law regarding the gratuity deduction. The Income-tax Appellate Tribunal held that gratuity liability is not contingent and accrues to the employer earlier, making it an allowable expenditure for business income computation. The Tribunal cited a previous Full Bench decision to support its stance on the gratuity deduction. The High Court agreed with the Appellate Tribunal's decision on the gratuity deduction. It noted that the liability to pay gratuity does not accrue only when settled with employees but earlier, and when events like retrenchment occur in the normal course of business, the liability is deductible. The High Court found no question of law to refer as the Tribunal's decision aligned with the Full Bench decision, dismissing the original petition filed by the Revenue. In conclusion, the High Court upheld the Appellate Tribunal's decision to allow the deduction of gratuity liability for the unregistered firm based on the premise that the liability accrued earlier and was integrally connected to the normal course of business operations. The judgment emphasized the importance of distinguishing between different types of liabilities and their deductibility for income tax purposes.
|
