Commissioner of Income Tax vs Simpson and Co. Ltd.

Thanikkachalam, J.—At the instance of the Department, the Tribunal referred the following two questions for the opinion of this Court under

s. 256(1) of the IT Act, 1961 :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount paid to employees under the

Voluntary Retirement Scheme should be allowed as a deduction ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount claimed as monetary value of

unavailed leave should be allowed as a deduction in computing the total income of the assessee ?

In so far as question No. 2 is concerned, that was not pressed by learned standing counsel for the Department. In so far as question No. 1 is

concerned, it relates to the asst. yr. 1976-77, relevant to the accounting year ending on 31st May, 1975. The ITO in the assessment had

disallowed the assessee''s claim for deduction of the sum of Rs. 10,00,803, being the amount paid under the Voluntary Retirement Scheme. The

ITO rejected this claim as in the earlier years. On the assessee''s appeal, the CIT(A) held that the payment was deductible following his order for

the asst. yr. 1975-76. On further appeal by the Revenue, the Tribunal sustained the CIT''s view, following the earlier order of the Tribunal in ITA

Nos. 2104 to 2107/Mds/1979 for the asst. yrs. 1972-73 to 1975-76 in the assessee''s own case. A similar view was also taken by the Tribunal in

the case of George Oakes Ltd., in ITA Nos. 979 to 981/Mds/1977-78, dt. 3rd August, 1973. This decision of the Tribunal, came up on reference

before this Court in Commissioner of Income Tax Vs. George Oakes Ltd., , whereunder this Court held that retrenchment was done for

reorganising the branch and thereby reducing the wage bill as well. Therefore, it was considered that these matters pertain to business

considerations and expediency and the expenditure incurred by the assessee in this regard was for the purposes of business and also with a view to

maintaining good relationship with the labour and that expenditure had to be considered as having been laid out wholly and exclusively for the

purpose of business of the assessee. Therefore, this Court ultimately came to the conclusion that the expenditure incurred was deductible. In doing

so, this Court also followed the decision of the Supreme Court in Sassoon J. David and Co. Pvt. Ltd., Bombay Vs. Commissioner of Income Tax

, Bombay, . A similar view was also taken by this Court in a matter like this in Commissioner of Income Tax Vs. Sri Ramavilas Service Ltd., . In

view of the foregoing decisions, we answer question No. 1 in the affirmative and against the Department. No costs.