Madras High Court
Commissioner Of Income-Tax vs Sri Ramavilas Service Ltd. on 23 March, 1994
Equivalent citations: [1995]211ITR763(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT Venkataswami, J.
1. At the instance of the Revenue, the Tribunal has referred the following two questions under s. 256(1) of the IT Act, 1961, for the decision of this Court :
" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provision for monetary value of the unavailed leave salary of the employees should be allowed as a deduction ? and (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 23,084 being the retrenchment compensation and notice pay to the employees voluntarily retired would be an admissible deduction ?"
2. Mr. C. V. Rajan, learned counsel appearing for the Revenue, submitted that he has instructions not to press the first question. Accordingly, we are returning the first question without giving any answer.
3. So far as the second question is concerned, the brief facts are the following :
The assessee claimed a sum of Rs. 23,084 as compensation paid to the employees who retired voluntarily, and that the said sum must be treated as business expenditure. The ITO did not agree that the said sum was expended by way of business expenditure as it cannot be considered as statutory liability in terms of the provisions of ss. 25F, 25FF or 25FFF of the Industrial Disputes Act. The ITO further held that the payment must be treated as voluntary, and, on that ground, disallowed the claim of the assessee. On appeal by the assessee, the AAC allowed that claim, applying the decision of the Tribunal in ITA No. 193 of 1977-78. On further appeal by the Revenue, the Tribunal upheld the order of the AAC. Hence, the present reference at the instance of the Revenue.
4. It is seen from the order of the ITO that the payment of Rs. 23,084 was as per the scheme agreed to between the assessee and the employees. That being the position, can it be said that the amount represented a voluntary payment as contended by the Revenue, or can it be treated as business expenditure, as contended by the assessee, is the question to be decided.
5. This matter is no longer res integra. In CIT vs. George Oakes Ltd. (1992) 197 ITR 288 (Mad), a Division Bench of this Court had occasion to decide an identical issue, and we are told that the assessee in that case was a sister concern of the assessee in the case on hand. Ratnam, J., as the learned judge then was, speaking for the Bench, while answering a question identical to the present one, has observed as follows :
".... In other words, though under the provisions of the Industrial Disputes Act as such, no liability was cast on the assessee for making available the benefits of retrenchment to the nine retired workmen, yet, under the standing orders, it became necessary for the assessee to meet that obligation. The purpose of retrenching the nine workmen, as found by the Tribunal, was only to contain the loss, reorganise the branch by reducing the staff and to bring about a reduction in the wage bill as well. These are matters of management pertaining to business considerations and expediency and the expenditure incurred by the assessee in this regard was for purposes of business and also with a view to maintaining good relationship with labour and the expenditure has to be considered as having been laid out wholly and exclusively for business purposes of the assessee. A reference in this connection may be made to Sassoon J. David & Co. P. Ltd. vs. CIT , where the Supreme Court stated that it is too late in the day now to treat the expenditure incurred by a management in paying reasonable sums by way of compensation for termination of service as not business expenditure. It is also significant that it is not the stand of the Revenue that the sum of Rs. 2,481 representing the payment of notice pay to the nine workmen is not reasonable. Therefore, the third question is answered in the affirmative and against the Revenue."
6. As noticed by the learned judges in the decided case of CIT vs. George Oakes Ltd. (supra), here also there was a scheme pursuant to which the amount in question was given. The decision of the Supreme Court referred to above (in the extract given supra), fully supports the stand taken by the assessee, and in the circumstances, we find no difficulty in answering the second question against the Revenue and in the affirmative. The Revenue will pay the costs which are fixed at Rs. 500.