Ita/22/2010 Of The Commissioner Of Income Tax, Cochin v. Late Shri.c.t.varghese

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON MONDAY, THE 22ND DAY OF OCTOBER 2018 / 30TH ASWINA, 1940 I.T.A.No.22 of 2010 AGAINST THE ORDER IN I.T.A.NO.1147/COCH/2005 DATED 22.06.2009OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX, COCHIN. BY SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOI (TAXES) RESPONDENT/RESPONDENT: LATE SHRI.C.T.VARGHESE,L/H.SMT.MERCY VARGHESE & 4 OTHERS,CHITTILAPILLY CORPORATION, M.G.ROAD, KOCHI-35. OTHER PRESENT: SRI P.K.R. MENON, SENIOR COUNSEL FOR GOI (TAXES) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 22.10.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT Vinod Chandran,J. The Revenue is in appeal from an order of theTribunal, which affirmed the order of the first appellate authority. 2. The questions of law raised are re-framed asfollows: (i) Was the Tribunal right in law in upholding thedeletion of disallowance of Retrenchment Compensation(Rs.4,97,500), Renovation expenses (Rs.5,33,590),Repairs and maintenance (Rs.4,57,314), Advertisementexpenses (Rs.5,64,582) and Sales promotion expenses(Rs.5,48,540) since the assessee sold away hisproprietory business concern to the firm; whenactually the business was carried on by the firm? (ii) Had not the Tribunal erred in not appreciating thefact that the retrenchment compensation was disallowedfact that the retrenchment compensation was disallowed on the basis of the decision of Supreme Court inGemini Cashew Sales Corporation - 65 ITR 643 (SC)?Gemini Cashew Sales Corporation - 65 ITR 643 (SC)? 3. The assessee had claimed expenses under Section37 of the Income Tax Act, 1961 [for brevity “IT Act”] on fivespecific heads - retrenchment compensation, renovationexpenses, repairs and maintenance expenses, advertisementexpenses and sales promotion expenses. The assessee hadretail business in Home Appliances, which were sold to apartnership firm in which also the assessee was a partner.The assessee claimed the aforesaid expenses in the return ofincome for the year 2001-02, the sale having been occasionedin the previous year, i.e. On 14.07.2000. The first appellateauthority allowed the expenses, which was affirmed by theTribunal. 4. What assumes significance is the date on whichthe assessee had stopped his business by reason of the saleeffected to the partnership firm, i.e., 14.07.2000. Theretrenchment compensation is said to have been paid between16.08.2000 to 28.08.2000, after the transfer of theestablishment. The Assessing Officer [for brevity “A.O”]-relied on the decision in Commissioner of IncomeTax, Keralav. Gemini Cashew Sales Corporation [(1967) LXV ITR 643 (SC)];wherein, on dissolution of a partnership firm, in which therewere two partners, by reason of death of one of the partners,the firm claimed expenses for retrenchment compensation. TheHon'ble Supreme Court found that there as no reason forretrenchment compensation to be paid, since there wascontinuance of the firm by the surviving partner. Section25FF of the Industrial Disputes Act, 1947 [for brevity “IDAct”] was specifically referred to and found thatthere was a right conferred on the employee for retrenchmentcompensation in the event of transfer of an undertaking. Theproviso however, absolved the employer - the transferor ortransferee - from the liability if the service of the workmanhas been continued uninterruptedly.5. In the present case, the assessee had taken acontention that the assessee had continued the business. Infact, it was the partnership which had continued the business. In such circumstance, there can be no claim ofretrenchment compensation by the assessee who had sold theestablishments and business was also continued by thetransferee firm. 6. With respect to renovation expenses and repairsand maintenance, the Assessing Officer found that since thebusiness itself was sold, there was no reason for incurringsuch expenses. The assessee had taken a specific contentionthat the renovation was done with a view to sell the businessto the partnership firm. The Assessing Officer took the viewthat if the renovation was done after the decision to sellthe business was taken, then necessarily it is not anexpenditure incurred for the business of the assessee. We donot think such a view can be taken especially since theassessee had a case that he expended the amounts for thepurpose of sale, in which sale he had also declared long termcapital gains coming to Rs.75 lakhs. In such circumstances,the renovation expenses and expenses for repairs andmaintenance have to be allowed as an expenditure underSection 37.7. What is remaining is advertisement expenses andsales promotion expenses; which were also carried out priorto the same and after the sale. The dis-allowance has beenmade by the A.O only to that portion expended after the sale, which also we find to be proper. The order of the A.O on thatcount is liable to be restored. 8. Insofar as the retrenchment compensation is concerned the order of the A.O is restored. As far asrenovation and repairs and maintenance, the dis-allowancemade by the A.O is bad in law and the order of the Tribunalis upheld. On the question of advertisement expenses andsales promotion, the question is answered in favour of theRevenue and against the assessee and the order of theAssessing Officer is restored which declined theadvertisement expenses and sales promotion expenses after thedate of sale.Ordered accordingly. Parties are left to suffertheir respective costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENONJUDGE APPENDIX PETITIONER'S/S ANNEXURES: ANNEXURE-A COPY OF ASSESSMENT ORDER U/S.143(3) DATED 20.01.2004 OF THE ASSESSMENT YEAR 2001-02. ANNEXURE-B COPY OF THE ORDER DATED 12.08.2005 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE-C CERTIFIED COPY OF THE ORDER DATED 22.06.2009OF THE INCOME TAX APPELLATE TRIBUNAL, COCHINBENCH IN I.T.A.NO.1147/COCH/2005. RESPONDENT'S/S EXHIBITS: NIL Vku/- [ true copy ]