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Issues:
- Dispute regarding deduction of gratuity and notice pay. Analysis: 1. The appeal concerned the deduction of gratuity and notice pay following the death of the proprietor of a business. The Income Tax Officer (ITO) rejected the deduction claim, stating there was no termination of employees' services and no discontinuance of business. The Commissioner (Appeals) upheld the disallowance, emphasizing the continuity of business with a change in the person managing it. The appellant argued that the liability arose under specific acts and provision had been made in the accounts. The departmental representative contended that no liability had become payable during the relevant period. 2. The Appellate Tribunal analyzed the situation, noting that the business continued without interruption after the proprietor's death, with her husband taking over. As there was no transfer of the business, the liability for gratuity and notice pay did not arise during the accounting year. Referring to the Supreme Court's decision in CIT v. Gemini Cashew Sales Corpn., the Tribunal highlighted that liabilities arising from business transfers are not deductible unless they occur during the business's operation. The Tribunal concluded that no liability for gratuity or notice pay arose in the relevant year. 3. The Tribunal distinguished various cases cited by the appellant's counsel, emphasizing that those cases involved clear liabilities for gratuity, unlike the present situation. The Tribunal found no applicable precedent supporting the deduction claim. Consequently, the Tribunal dismissed the appeal, ruling that the claim for gratuity and notice pay deduction was rightly disallowed. 4. In summary, the Tribunal held that the appellant failed to demonstrate a valid liability for gratuity and notice pay during the relevant accounting year. The decision was based on the absence of business transfer, the non-occurrence of liabilities during business operation, and the lack of precedent supporting the deduction claim. Ultimately, the appeal was dismissed, affirming the disallowance of the gratuity and notice pay deduction.
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