Commissioner of Income Tax vs Foseco India Ltd.

In this appeal by the Revenue for the assessment year 1999-2000, the following reframed question of law has been raised for our consideration: Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing the expenditure related to the voluntary retirement scheme of Rs. 4,10,90,573 in respect of the Jamshedpur unit and Rs. 1,07,23,833 in respect of the Jammu unit even though such expenditure concerned the closure of the business activities of the assessee in these units?

The respondent-assessee claims expenditure of Rs. 4.10 crores and Rs. 1.7 crores in respect of the voluntary retirement scheme offered to its employees of the Jamshedpur and Jammu units as revenue expenditure u/s 37 of the income tax Act, 1961 ("the Act"). The respondent-assessee claimed the above expenditure as revenue expenditure as the units of Jamshedpur and Jammu were closed during the years under consideration as a part of restructuring its business. The employees who did not opt for the voluntary retirement scheme were transferred to other units of the company as it was a continuing business. The respondent-assessee also claimed that there was centralised control and interlacing of management between the various units. The Assessing Officer did not accept the assessee''s contention and treated the entire expenditure as capital expenditure.

In appeal, the Commissioner of income tax (Appeals) also upheld the order of the Assessing Officer and held that the expenditure incurred on the voluntary retirement scheme at the Jamshedpur and Jammu units cannot be allowed as revenue expenditure u/s 37 of the Act. On further appeal, the Tribunal allowed the respondent-assessee''s appeal. The Tribunal rendered a finding of fact that the respondent-assessee''s business is one single business even though each unit may claim deduction u/s 80HH of the Act independently. The closure of its Jamshedpur and Jammu units has not resulted in closure of its business. This was done for the purposes of restructuring so as to achieve modernisation. Further, the impugned order holds that the facts of the respondent-assessee''s case were similar to the case of K. RAVINDRANATHAN NAIR Vs. COMMISSIONER OF INCOME TAX, . The Tribunal held that the voluntary retirement scheme offered due to labour problems or as part of the restructuring process would not make a difference. The fact is that the assessee''s business is spread over India in various units and out of these units, the assessee has closed two units during the year for the purpose of relocating its business at Sanaswadi, Pune. In view of this, the Tribunal held that the expenditure paid to the employees of the Jamshedpur and Jammu units for the purpose of the voluntary retirement scheme can only be considered as an expenditure incurred in the course of the business. The incidental expenses incurred in restructuring the business has to be considered as expenditure incurred in the course of conducting the business and allowable u/s 37(1) of the Act.

We find that the facts of the present case as held by the Tribunal are similar to the one existing in the case of K. RAVINDRANATHAN NAIR Vs. COMMISSIONER OF INCOME TAX, . As the decision of the Tribunal is based on finding of the fact, we see no reason to entertain the proposed question of law. Accordingly, the appeal is dismissed with no order as to costs.