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Issues Involved:
1. Admissibility of loss incurred in the transfer of securities. 2. Admissibility of gratuity payment as a deduction. Summary: Issue 1: Admissibility of Loss Incurred in the Transfer of Securities The first issue concerns whether the loss of Rs. 16,096 incurred in the process of transferring securities to Karur Vysya Bank Ltd. was admissible. The assessee, engaged in banking, transferred its business to Karur Vysya Bank Ltd. on December 14, 1964. The agreement dated April 11, 1964, detailed the valuation of assets and liabilities, including Government securities listed in Schedule "B". The book value of these securities was Rs. 10,43,476.13, while the market value was Rs. 10,33,195.85. On the transfer date, the market value was Rs. 10,14,337, resulting in a loss of Rs. 16,096. The Income-tax Officer and the Appellate Assistant Commissioner considered this a capital loss, not deductible. However, the Income-tax Appellate Tribunal accepted the assessee's contention, noting that the securities were part of the stock-in-trade and the loss should be deducted from profits. The Tribunal's decision was challenged, but the court upheld it, distinguishing it from cases like Commissioner of Income-tax v. West Coast Chemicals and Industries Ltd. and Commissioner of Income-tax v. Mugneeram Bangur and Co., and applying the principle from Associated Clothiers Ltd. v. Commissioner of Income-tax. The court concluded that there was no slump sale and each asset was separately valued and sold, thus affirming the Tribunal's decision in favor of the assessee. Issue 2: Admissibility of Gratuity Payment as a Deduction The second issue pertains to whether the sum of Rs. 18,931, part of the gratuity transferred to Karur Vysya Bank Ltd., was admissible as a deduction. The assessee transferred Rs. 30,790 as gratuity payable to employees taken over by Karur Vysya Bank. The Income-tax Officer and the Appellate Assistant Commissioner rejected this claim, but the Tribunal allowed a deduction of Rs. 18,931, based on the agreement and acquittance obtained from employees. The court, however, found the Tribunal's decision erroneous, referencing the Supreme Court's ruling in Commissioner of Income-tax v. Gemini Cashew Sales Corporation, which held that liabilities arising from business transfer are not deductible as they are not incurred in the course of business. The court also cited Stanes Motors (South India) Ltd. v. Commissioner of Income-tax, emphasizing that the gratuity payment was not an expenditure incurred during business operations but arose from the business transfer. Thus, the court answered the second question in the negative, against the assessee. Conclusion: The court affirmed the Tribunal's decision on the first issue, allowing the loss on securities transfer as a deduction, but reversed the Tribunal's decision on the second issue, disallowing the gratuity payment as a deductible expense. No order as to costs was made since both parties succeeded and lost in part.
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