COMMISSIONER OF INCOME TAX Vs. DIESEL ENGINEER

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal has stated the case and referred the following three questions of law on the basis of the directions of this court, for our opinion :

(2.) THE assessee is a registered firm. It was carrying on certain manufacturing activities in addition to certain trading activities as part of its business. THE assessee discontinued its manufacturing business on September 15, 1975, and sold all the machinery to a company by name, Krislar Diesel Engines Private Limited, which was incorporated on August 31, 1975, and which started manufacturing diesel engines. THE assessee-firm retrenched 20 workers in the manufacturing unit of the assessee of whom 17 had found employment with Krislar Diesel Engines Private Limited. THE said private limited company is also a company formed by the partners of the assessee firm. Some labour dispute arose between the workers of the newly formed company and the management and ultimately a settlement was arrived at under the provisions of the Industrial Disputes Act before the Labour Officer, who issued orders in the month of September, 1977. Under the agreement, the assessee was required to pay a certain sum of money on or before October 15, 1977, and the workers should be deemed to have been retrenched from service of the assessee with effect from September 14, 1975. THE assessee paid a sum of Rs. 25,752 representing retrenchment compensation of Rs. 14,452 and gratuity of Rs. 11,300.

(3.) IN so far as retrenchment compensation is concerned, we have set out the facts earlier and it is clear that there was transfer of the assets of the manufacturing unit in favour of another company and there were certain surplus employees in the assessee-firm who have to be retrenched. Though the assessee was not a party to the settlement arrived at before the Labour Officer, the order of the Labour Officer clearly shows that the assessee was required to pay retrenchment compensation to the employees and their services were also terminated. The assessee in compliance with the orders of the Labour Officer had paid the same. The question that arises is whether such a payment can be regarded as business expenditure. The finding of the Appellate Tribunal is that there was a unity of control and unity of management of both the units of the business, viz., the manufacturing activity as well as the trading activity and both the units constituted a single business. The Revenue has not specifically challenged that finding though the question has been raised by the Revenue regarding the reorganisation of the business. IN view of the finding of the Appellate Tribunal that both the businesses constituted a single business, the payment by the assessee to some of its employees as retrenchment compensation should be regarded as a business expenditure. It is too late in the day to say that payment of retrenchment compensation by the employer to the employee cannot be regarded as a business expenditure. IN fairness to learned counsel for the Revenue, he submitted that if we uphold the finding of the Appellate Tribunal that both the units constituted a single business, the payment of retrenchment compensation would be allowable as a business expenditure. Though the Tribunal has not discussed in detail or indicated in its order the evidence on which it came to the conclusion that both the businesses constituted a single business, we are of the view that the Tribunal would have perused the orders of the INcome-tax Officer and the Commissioner of INcome-tax (Appeals) and materials on record and after satisfying itself that both the businesses constituted a single business, it recorded such a finding. Though there is no elaborate discussion by the Tribunal, the normal presumption one can draw is that the Tribunal has recorded its finding on the basis of materials, unless it is established that there are no materials for such a conclusion. It is not possible for the court, sitting in reference jurisdiction to go into the question of evidence on which it recorded a finding. Further, when the Tribunal rendered a finding that it was not disputed by the Revenue before it that two units constituted a single business the statement as to what happened before the Tribunal has to be given due effect and cannot be lightly brushed aside. IN view of the finding of the Appellate Tribunal that both the businesses constituted a single business, the assessee would be entitled to the deduction of retrenchment compensation as well. The decision relied upon by learned counsel for the Revenue related to cases of two different businesses and on the closure of one business, the Supreme Court as well as the other High Courts have taken the view that the liability arose on the closure and the discharge of the liability by payment of retrenchment compensation was not for the purpose of carrying on the business. But here, the factual position is different as it has been found that both the units of the business are single and indivisible and once the finding of the Appellate Tribunal is not challenged, the payment of retrenchment compensation by the assessee should be regarded as a business expenditure and it cannot be regarded as a contingent liability which fell on the assessee on the closure of its business. The assessee continued its business in the remaining business of trading activity and, therefore, the liability has fallen on the assessee, during the course of carrying on the business and during the course of the reorganisation of the business.