Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1972-73 - By an agreement assessee transferred all its assets and liabilities to another concern - Transferee had taken over employees of assessee's business with continuity of service and all accrued monetary benefits - Assessee had to pay certain amount to transferee towards gratuity liability in respect of employees transferred - Whether such payment should be taken as payment made to discharge assessee's liability and as such it had to be allowed under section 37(1) - Held, yes FACTS By an agreement, the assessee gave up possession of all the assets and liabilities in one of its business in favour of another concern. On a settlement of the assets and liabilities there was an excess of liabilities over assets and the assessee paid the said sum to the transferee who succeeded to the business. One of the clauses in the agreement was that all the employees in that business would become employees of the transferee on terms no less favourable to them with continuity of service. The liabilities as worked out under the agreement included amount of provision for gratuity due to the employees of the business taken over by the transferee. The assessee claimed as deduction provision for gratuity relating to the business retained by it as also relating to the business transferred. The ITO disallowed both the amounts. On appeal the AAC held that the incremental gratuity liability calculated on actuarial basis should be allowed as deduction. On further appeal, the Tribunal held that to the extent of the incremental gratuity liability, a deduction had to be allowed and this would be applicable to the gratuity payable to the employees of business retained by the assessee subject to the verification of the quantum. The Tribunal also held that so far as the gratuity liability amount paid by the assessee to the buyer towards the gratuity liability in respect of employees transferred as per the agreement was concerned, which had to be paid to them as and when the actual liability arose, it should also be allowed as a deduction. On reference : HELD Firstly, the incremental…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492