9911796707
TMI Blog1984 (10) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... , those employees were reappointed by Shri P.R. Chellaram, the husband of the assessee. Thus, it was urged that the above amounts paid were deducted in this year as it was a liability of this year. The ITO did not accept these submissions. He held that there was no termination of services of employees at all and there was no question of payment of gratuity and notice pay. He held that 24-5-1980 was a Sunday and there was no discontinuance of business also even for a day. The business was continued as a going concern by Shri P.R. Chellaram, the husband of the assessee. Under section 40A(7) of the Income-tax Act, 1961 ('the Act') no provision for gratuity can be allowed unless the conditions prescribed therein are fulfilled. None of the condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the amount claimed as deduction cannot be allowed. Liability, in this case, did not arise during the period when the business was carried on by the assessee. Hence, it is not payable. Thus, the disallowance made was justified. 6. We have considered the rival submissions. Smt. Jyothi Chellaram died on 24-5-1980. 25th was a Sunday, which was a general holiday. The business was continuously carried on without any break by Shri P.R. Chellaram, her husband. As legal heirs, he carried on business and as such, there was no transfer of the business from one person to someone else. Hence, the question of payment of any gratuity or notice pay did not arise during the accounting year. There is no provision either in the Andhra Pradesh Shops and Es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yle of Gemini Cashew Sales Corporation. The partnership was dissolved on the death of Ramasubramony on 24-8-1957 and the business was taken over and continued by Walter on his own account. The services of the employees were not interrupted and there was no alteration in the terms of employment of the employees of the establishment. It was urged that an amount of Rs. 1,41,506 taken into account under the head 'Gratuity payable to workers of the business' in settling the accounts of the firm till 24-8-1957 was a permissible outgoing. This contention was rejected by the revenue authorities, but the Tribunal allowed the claim for deduction and the High Court, on reference, upheld the findings of the Tribunal. The matter was carried to the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso, transferred to a new employer, and not till then. The right therefore arises from determination of employment, or from transfer of the undertaking : it has no existence before these events take place. " Again, it was observed as under : " As already observed, the liability to pay retrenchment compensation arose for the first time after the closure of the business and not before. It arose not in the carrying on of the business, but on account of the transfer of the business. During the entire period that the business was continuing, there was no liability to pay retrenchment compensation. The liability which arose on transfer of the business was not of a revenue nature. Profits of a business involve comparison between the state of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But where the liability is, during the whole of the period that the business is carried on, wholly contingent and does not raise any definite obligation during the time that the business is carried on, it cannot fall within the expression 'expenditure laid out or expended wholly and exclusively' for the purpose of the business. " Thus, it was held that the amount of Rs. 1,41,506 cannot be regarded as properly admissible deduction either under section 10(1) or section 10(2)(xv) of the Indian Income-tax Act, 1922. The above ratio squarely applies to the instant case. In the instant case also, the gratuity liability did not arise during this year of accounting. It did not arise in the carrying on of the business of the assessee. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of gratuity under the Andhra Pradesh Shops and Establishment Act, so far as the assessee is concerned. Similarly, there is no liability by the assessee for payment of gratuity or notice pay under the Payment of Gratuity Act. Under section 40A(7)(b)(i), only gratuity that has become payable during the previous year will be allowed. But in the instant case, no gratuity became payable during the previous year. Thus, the provisions of section 40A(7) will not help the assessee. Thus, in our view, no liability for payment of gratuity and notice pay has arisen during the previous year. 8. The learned counsel for the assessee relied on the decisions in Dalmia Dadri Cement Ltd. v. CIT [1980] 126 ITR 851 (Delhi), CIT v. High Land Produce Co. Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
