Law:

Section:

Section 37(1) of the income-tax act, 1961-Business expenditure-Assessee-firm's running business was taken over by a company with all assets and liabilities and services of assessee's employees were also transferred to said company under agreement-Under conditions stipulated in agreement, assesses was ab initio not liable to pay retrenchment compensation under section 25ff of industrial disputes act-whether provision made by assessee for such payment was allowable as deduction-held, on facts, no Facts The running business of the assessee-firm was taken over by a company with all its assets and liabilities. In terms of the transfer agreement, the services of the assessee's employees also stood transferred to the aforesaid company without any break and on conditions which were not less favourable than the old ones. One day prior to the transfer, the assessee made provision of a certain amount in its books as retrenchment compensation allegedly payable to its employees under section 25FF of the Industrial Disputes Act, 1947. The assessee's claim for deduction of this amount was negatived by the ITO. The AAC confirmed the ITO's order, but the Tribunal allowed the assessee's claim. On reference: Held Under section 25FF of the Industrial Disputes Act, where there was a change of employer by reason of transfer and the conditions mentioned in clauses (a), (b) and (e) of the proviso to that section were satisfied, the section would not apply to the workmen in such a case. In the instant case, it was ensured under the agreement of transfer that the services of the employees were not interrupted by the transfer, that the terms and conditions of service applicable to them were in no way less favourable than those applicable immediately before the transfer, and that, in the event of their retrenchment, the transferee-company would be liable to pay them retrenchment compensation on the basis that their services had been uninterrupted. Thus, all the conditions laid down in the proviso to section 25FF were satisfied. Clearly, no liability arose to the assessee to pay retrenchment compensation to its employees at the time of the transfer of the assessee's business to the…

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