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TMI Blog1990 (7) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... gratuity paid in the assessment year 1969-70 ? 2. Whether the Appellate Tribunal's finding that the payment was made in the course of carrying on of the business and not on the closure of the business based on valid materials and is sustainable in law ?" The assessee is a registered firm engaged in the business of running printing press. In the course of the assessment proceedings for the accounting period ending on March 31, 1969, relevant for the assessment year 1969-70, the claim of the assessee for deduction of a sum of Rs. 70,000 paid as retrenchment compensation and gratuity was allowed by the Income-tax Officer, but he, however, later, reopened the assessment and disallowed the claim of the assessee on the ground that the retren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee-firm. Paragraph 5 therein sets out the reasons for the closure of the business and also the date of such closure in the following terms : "Whereas, owing to a stay-in strike resorted to by the workers in the business which was not given up in spite of the advice of the officials of the Labour Department and whereas the workmen also resorted to demonstration and shouting of filthy slogans, the business had to be closed down on March 3, 1969, due to circumstances beyond the control of the parties hereto. " From the aforesaid provision in the deed of dissolution, even according to the assessee, the business had to be closed down on March 3, 1969, owing to reasons beyond its control. Annexure 'E' to the stated case is the specimen noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch 3, 1969, when the payments in question were made, but that the business was carried on till March 15, 1969, when the accounts were closed and the closure of the business was effected. In the course of its order, the Tribunal, while accepting the provision in the deed of dissolution to the effect that the business had been closed down on March 3, 1969, proceeded to state that it had to be viewed in the background of the factors prevalent at the relevant point of time and that showed that the assessee had no other option except to discharge the workers. We fail to see how, in the face of the clear and unambiguous terms in the deed of dissolution, it was open to the Tribunal to hold that the clause in the deed of dissolution did not operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the assessee had claim against it for payment of retrenchment compensation and gratuity and those amounts were paid to the workers and as the closure of the business had taken place only on March 15, 1969, and as it was open to the assessee to have continued the business even thereafter, the expenditure incurred by the assessee would be in the nature of a revenue expenditure admissible under section 37(1) of the Act. We are unable to agree with this line of reasoning of the Tribunal, for, even according to the Tribunal, between March 4, 1969 and March 15, 1969, collections were made and pending orders were executed, though the printing business was not carried on by the assessee by itself, but through others. After the decision tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s between March 4, 1969 and March 15, 1969, would not make any difference and also would not enable the assessee to claim that the payment of retrenchment compensation and gratuity was during the course of the carrying on of the business and would thus be an item of revenue expenditure. Learned counsel on both sides invited our attention to some decisions. But we are of the view that there is no need to make a detailed reference to all of them, except the one in Venkatesa Colour Works v. CIT [1977] 108 ITR 309 (Mad) which, in our view, clinches the issue. In that case, the assessee decided to close its factory with effect from April 10, 1967 and an agreement was also entered into between the management and the workmen on April 7, 1967, un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We hold that the decision in Venkatesa Colour Works v. CIT [1977] 108 ITR 309 (Mad) would govern this case also. We, therefore, answer the first question referred to us in the negative and against the assessee. Regarding the second question, we find that the conclusion of the Tribunal cannot be sustained. Merely on the basis that the accounts were closed only on March 15, 1969, despite an earlier decision to close down the business on and from March 3, 1969, it cannot be assumed that the assessee was carrying on its usual business activities during that interval. We had earlier pointed out that, even as per the letter of the assessee appended as annexure 'A' to the stated case, the transactions after March 3, 1969, consisted of issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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