Commissioner of Income Tax vs George Oakes Ltd.

Ratnam J.

In these tax case references u/s 256(1) of the Income Tax Act, 1961, at the instance of the Revenue, the following question of law have been

referred to this court for its opinion :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the provision for monetary value of

unavailed leave salary of the employees should be allowed as a deduction ? (common to all the years).

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that sum of Rs. 12,171 being the arrears

of urban land tax, is an admissible expenditure for the assessment year 1973-74 even though the tax related to the earlier years ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 2,481, being the

notice pay to workers voluntarily retired should be allowed as a deduction for the assessment year 1973-74 ?"" (only in T.C. No. 1003 of 1980).

In so far as the first question is concerned, learned counsel for the Revenue now represents that he has been instructed not to press for an

answer on this question and we, therefore, refrain from answering the common question.

In so far as the second question is concerned, in view of the decisions reported in Commissioner of Income Tax Vs. M. Ct. Muthiah, ,

Commissioner of Income Tax Vs. Woodlands Hotel, and Commissioner of Income Tax Vs. East India Industries (M) Pvt. Ltd., , the question is

answered in the affirmative and against the Revenue.

The third question arise the way. The assessee is a limited company and, during the accounting year relevant to the assessment year 1973-74, it

paid to nine workers, consequent on their voluntary retirement, a sum of Rs. 2,481 respecting notice pay. The Income Tax Officer treated this

payment as a voluntary payment and therefore inadmissible as expenditure wholly and exclusively incurred for purpose of business. The Appellate

Assistant Commissioner, however, took the view that though the payment of Rs. 2,481 was in the nature of voluntary payment, it was made to

maintain good relationship with the employees and upheld the claim of the assessee that the expenditure was an allowable item laid out wholly and

exclusively for purposes of business. The Tribunal, in the course of its order, found that the assessee was finding it difficult to function owing to the

sustaining of loses and with a view of reorganise the branch by reducing the staff, nine workers who had offered to the voluntarily retire were paid

notice pay as standing orders and the expenditure incurred by the assessee was incurred as part of business expediency and hence allowable as

claimed by the assessee. That is how the third question referred to above the come up before us.

There is no dispute that, during the accounting period relevant to the assessment year 1973-74, the assessee had sustained losses and had

wanted, by reducing the staff, to bring a reorganisation of the branch saving on the wage bill as well. Under the standing orders, provision is made

for a voluntary retirement scheme and it is stated that, in all such cases of voluntary retirement, the quantum of benefits will be as for retrenchment

as per the Industrial Disputes Act. Though voluntary retirement under the provisions of the Industrial Disputes Act, cannot be regarded as regarded

as retrenchment, yet under the standing orders which are binding on the assessee as well as on the workers as scheme has been evolved for

voluntary retirement on benefits being made available to retiring workmen, as if they had been retrenched under the provisions of the Industrial

Disputes Act. It is not disputed that, if the assessee had resorted to the procedure outlined in the Industrial Disputes Act for retrenching the nine

workmen, the assessee would have been liable to pay such benefits as would be available to the retrenched workmen as per the Industrial

Disputes Act. However, the assessee resorted to the voluntary, yet the benefits are available on a par with those under the Industrial Dispute Act.

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 to management pertaining to business considerations and expediency and

the expenditure incurred by the assessee in this regard was for purpose of business and also with the a view to maintain 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 and Co. Pvt. Ltd., Bombay Vs. Commissioner of Income Tax , Bombay, where the Supreme

Court stated that it is too late in the day not 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 it is not the stand to the

Revenue that the sum of Rs. 2,481 representing the payment to notice pay to the nine workmen is not reasonable. Therefore, third question is

answered in the affirmative and against the Revenue.

There will be no order as to costs.