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Section 37(1) of the income-tax act, 1961-Business expenditure-Assessee carried on business of exhibition of films in two theatres-Business discontinued in one theatre due to expiry of lease but continued in the other theatre-Whether this would amount to closure of business so that retrenchment compensation. paid to employees is not an allowable deduction-Held, no Facts The assessee-firm carried on the business of exhibition of films at two theatres taken on lease. On the expiry of lease of one such theatre, the assessee discontinued the exhibition of films there, though he continued to carry on that business in the other theatre. Its claim for deduction of retrenchment compensation paid to the employees of the theatre so closed, was disallowed by the ITO as well as by the AAC. On second appeal, the Tribunal sustained the AAC's order on the ground that since separate books of account were maintained for each theatre, there was a closure of business when business was discontinued in the first theatre. On reference: Held The same business was carried on by the assessee at two places and hence discontinuance of business at one place would not amount to closure of that business, when the same business was continued to be carried on by the assessee at another place. As there was no closure of business, the liability of the assessee to pay retrenchment compensation on account of discontinuance of business at one theatre, could not be held to be a liability arising on account of closure of its business. The deduction claimed by the assessee was, thus, allowable. Case review CIT v. C. Parakh & Co. (India) Ltd. [1956] 29 ITR 661 (SC) followed. Venkatesa Colour Works v. CIT [1977] 108 ITR 309(Mad.) distinguished. Cases referred to CIT v. C. Parakh & Co. (India) Ltd. [1956] 29 ITR 661 (SC), CIT v. Gemini Cashew Sales Corpn. [1967] 65 ITR 643 (SC),Venkatesa Colour Works v. CIT [1977] 10 ITR 309 (Mad.) and Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 11 ITR 261 (SC). Order SOHANI, J.- On an application made by the assessee under section 256(2) of the Income-tax Act, 1961 ('the Act'), this Court had directed the Tribunal to state the case and refer the…

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