COMMISSIONER OF INCOME TAX Vs. SIMON P I

JUDGEMENT

(1.) At the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following two questions of law for the decision of this Court :

(2.) The respondent, an individual, is an assessee to Income Tax. We are concerned with the assessment year 1975-76. The previous year ended on 31st March 1975. The assessee was mainly dealing in oil, and oil seeds as well as commission agency in those goods. He was also running an oil mill in a different locality in the same town. The oil mill was closed. The assessee had to pay a sum of Rs. 20,850 as retrenchment compensation to the employees. It was claimed as deduction for the computation of the income. The Income Tax Officer allowed the same. The Commissioner of Income Tax initiated suo motu revision proceedings under S.263 of the Act and held that the oil mill was a "separate" business and was not part of the assessee's business in oil and oil seeds and so the expenditure incurred, by way of payment of retrenchment compensation, was not an allowable deduction. The assessee appealed before the Appellate Tribunal and contended that the business carried on by him was the same and so the payment of retrenchment compensation was a deductible item of expenditure. Two main grounds, relied on by the Commissioner of Income Tax, to negative the deduction were the following: (1) The oil mill was maintaining separate accounts and (2) the assessee had entered into an agreement with the workers under which compensation was paid, stating that he would retake the workers, if for any reason the oil mill was restarted. The Commissioner held that there would not be such a clause in the agreement, if the oil mill was only a branch, or part of the same business run by the assessee. The Appellate Tribunal referred to the tests laid down by the Supreme Court of India in B. R. Ltd. v. V. P. Gupta, CIT 113 I.T.R. 647 to decide whether the oil mill business formed part of the assessee's business or a separate business and held that there was unity of control in the nature of the two lines of business. It also held that the entire requirements of finance for the oil mill came from the head office. It was further observed that the only credit item in the balance sheet on the liability side is the dues to the head office, that the oil mill has no independent bank account and no loans are shown as payable by the oil mill and in the circumstances there was complete interfacing and interlocking of funds apart from unity of control. In the light of the tests laid down, in the decision of the Supreme Court mentioned above, the oil mill was found to be only a branch and not a separate business. Holding that the business is one and the same and that the requirements of business necessitated the closing down of the oil mill, the Appellate Tribunal held that the payment of retrenchment compensation, necessitated on account of the closure of the oil mill, is a permissible deduction under S.37 of the Income Tax Act. It is thereafter, at the instance of the Revenue, the Income Tax Appellate Tribunal has referred the questions of law, formulated herein above, for the decision of this Court.

(3.) We heard counsel for the Revenue, Mr. N. R. K. Nair, as also counsel for the assessee respondent The sole question that arises for consideration is whether the different activities carried on by "the assessee constitute the same business. The said question has to be decided on the application of tests laid down by the Supreme Court of India. In such circumstances, on the application of the tests laid down by the Supreme Court, whether the different activities carried on by the assessee constitute the same business, is largely a mixed question of fact and law. Unless it is shown that the Tribunal applied the tests laid down by the Supreme Court wrongly or that there is no evidence to support the findings of the Tribunal or that the proper legal inference from facts has not been drawn or that the decision of the Appellate Tribunal is otherwise irrational or perverse, this Court will not be entitled to interfere with the findings of fact arrived at by the Appellate Tribunal.