Pradeep Pictures vs Commissioner of Income Tax

Sohani, J.—This is an application u/s 256(2) of the I.T. Act, 1961 (hereinafter referred to as "the Act").

The applicant-assessee is a partnership firm registered under the Act. For the assessment year 1972-73, for which the accounting period ended on 31st December, 1971, the assessee contended that the amount of Rs. 26,271, which was paid by the assessee to the employees of Raj theatre on account of retrenchment compensation payable under the provisions of the Industrial Disputes Act, 1947, was an allowable expenditure in computing the income of the firm. The claim of the assessee was, however, rejected by the ITO. On appeal, the AAC upheld the finding of the ITO in this behalf. On further appeal, the Tribunal held that the expenditure incurred by the assessee could not be said to be an expenditure laid out and incurred wholly and exclusively for the purpose of business. In this view of the matter, the Tribunal dismissed the appeal. An application for making a reference filed by the assessee was also rejected by the Tribunal. Hence, the assessee has filed this application.

Having heard learned counsel for the parties, we have come to the conclusion that a question of law does arise as to whether the sum of Rs. 26,271 constituted an allowable expenditure in computing the income of the firm for the assessment year 1972-73. The application is, therefore, allowed, and we direct the Tribunal to state the case and refer the following question of law to this court for its opinion ;

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure amounting to Rs. 26,271 incurred by the assessee on account of retrenchment compensation was not of a revenue nature and did not constitute an allowable expenditure in computing the income pf the assessee for the assessment year 1972-73?"

In the circumstances of the case, parties shall bear their own costs of this application.