LexCOMMISSIONER OF INCOME-TAX, KERALA versus GEMINI CASHEW SALES CORPORATION, QUILON
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
A
B
c
D
E
COMMISSIONER OF INCOME-TAX, KERALA
v.
GEMINI CASHEW SALES CORPORATION, QUILON
April 20, 1967
[J. c. SHAH, s. M. SIKRI AND v. R.i\MASWAMI, JJ.J
Income-Tax Act, 1922, s. 10(1) and 10(2) (xv)-Partnership dis-
solved on death of one pattnefr-Whether liability to pay retrenchment
compensation under s. 25FF on transfer of business to surviving partner
a permissible deduction as liability of a revenue nature.
A partnership of two partners was. dissolved on the death of ono .of
them on August 24, 1957 and the busmess was taken over by the _...
ing {'artner on his own account. The services of the employees were
not interrupted and there was no alteration in their terms of employ·
ment. In proceedings for assessment to income-tax for the ·assessment
year 1958-59 it was urged on behalf of the firm that an amount of
Rs. 1,41,506 taken in.to account under the head "gratuity payable to
workers of the business" in settlin_g the accounts of the firm till August
24, 1957 was a permissible out$01ng. The Income-tax Oftlcer rejected
the claim and the Appellate Ass!Stant Commissioner confirmed his order.
However, the Tribunal, in a{'peal, held that on the dissolution of the firm,
the workmen became en II tied to retrenchment 'compensation under
s. 25FF of the Industrial Disputes Act, 1947 and the firm was therefore
entitled to the deduction. The High Court, upon a reference, confirmed
this view.
On appeal to this Court,
HELD : The amount claimed by the assessee as a permissible allow-
ance in his profit and loss account could not be regarded as properly
admissible either under s. 10(1) or under s. 10(2)(x~) of the Income-
Tax Act, 1922. [735 Bl
Under the proviso to s. 25FF the liability to pay retrenchment com·
pensation arose for the first time after the closure of . the business and
F
not before. It arose not in the carrying on of the business, but on
account of the transfer of the business. It was not therefore a liability
of a revenue nature and could not be treated as a permissible deduction
under s. 10(1). [733 HJ
G
H
Alex A. Apcar (Jr.) & Company v. M. V. Gan and Othtr~ AJ.R,
1960 Cal. 14, referred to.
Anakpalia Cooperative
Agricultural and Industrial
Society v. Its
W~r~men & Others, [1962] 2 LL.J, 621, Calcutta Company Ltd, v. Com-
mrssroner of Income-tax, West Bengal, 37 I.T.R. 1 and Owen (H. M.
Irispe_ctor of Taxes) v. Southern Railway of Peru Ltd., 36 T.C. 602. dis-
tinguished.
Where accounts are maintained on the mercantile system if liability
to make a payment has arisen during the time the ~
i9 carried on
and the ~penditure is for .the purpose of carrying on the business, it may
be deductible under Section 10(2) (xv) but where the liability is during
the whole of the period that the business is carried on Wholly contingent
and does not raise any definite obligation during that time it cannot fall
L9Sup.Cl/67-3
128
SUPllEME COURT REPORTS
(1967] 3 S.C.R.
within the expression "expenditure laid out or expended wholly or ex·
A
elusively" for the purpose of the business. (734 D-E]
Commissioner of Income-tax, Madras v. Indian Metal and Metallur-
gical Corporation, 51 · I.T.R. 240 and Standard Mills
Company Ltd. v.
Commissioner of Wealth-tax, Bombay, 63 I.T.R. 470, relied on.
CIVIL APPELLATE JURISDICTION:
Civil Appeal No. 702 of
1966.
B
Appeal by special leave from the judgment and order dated
July 30, 1964 of the Kerala High Court in Income-tax Referred
Case No. 20 of 1963.
S . .T; Desai, S.1( ... Aiyar and R. N. Sachthey, for the appel-
lant.
C
T. V. Viswanath. Iyer, S. K. Dho/akia, and 0. C. Mathur,
for the respondent.
The Ju.dgment of the Court was delivered by
Shah, J. ·Two persons--Walter
and Ramasubramqny-
:-:arried. on business in ca5hewnuts as piirtners in the name and
style of Messrs; Gemini Cashew Sales Corporation. The partner-
ship wa5 .dissolved on the death of Ramasubramony on August
24, .1957, and the business was taken over and continued by
Walter on his own account. The services of the employees were
not interrupted and there was no alteration in the terms of em-
ployment of the employees of .the establishment.
In proeeedings for assessment of tax it was urged on behalf
of the firm that an amount of Rs. 1,41,506 taken into account
under the head "Gratuity payable to workers of the business" in
sett~g the accounts of the firm till August 24, 1957, was a permis-
.sible outgoing. The Income-tax Officer rejected the claim aExcerpt shown. Read the full judgment & AI analysis in Lexace.