Commissioner of Income Tax vs KJS India P. Ltd.

C. M. No. 17032 of 2011 (exemption) In I. T. A. No. 1092 of 2011.-- Allowed subject to all just exceptions.

Application stands disposed of.

C. M. No. 17033 of 2011 (delay) in I. T. A. No. 1092 of 2011.--For the reasons stated in the application, the delay in filing the appeal is condoned.

The application stands disposed of.

I T. A. No. 1092 of 2011.--During the assessment proceedings the Assessing Officer found that the assessee had incurred the expenditure of Rs. 93,91,706 debited in the profit and loss account as severance cost of employees. Likewise, another expenditure on marketing and research in the sum of Rs. 29,14,242 was shown to be incurred by the assessee. The Assessing Officer had taken the whole expenditure as capital in nature and disallowed the same.

The assessee preferred an appeal there against. The Commissioner of income tax (Appeals) upheld the disallowance made by the Assessing Officer on account of severance cost of employees, however, expenses shown on market and research expenses was allowed treating the same as revenue in nature. Both the assessee as well as the Revenue preferred appeals against the aforesaid order of the Commissioner of income tax (Appeals). The income tax Appellate Tribunal has allowed the appeal of the assessee and dismissed that of the Revenue. It is under these circumstances, the present appeal is filed challenging the order passed by the Appellate Tribunal.

In so far as severance cost of employees is concerned, it may be noted that the assessee-company had started manufacturing of powdered soft drink in the name and style of "Tang". However, during the year in question they decided to stop its manufacturing activity as it was found to be non-profitable. Because of this, many employees who were directly in this manufacturing activity were laid off and the severance cost to those employees in the sum of Rs. 93,91,706 was paid. The Assessing Officer had treated it as a closure of business of the assessee and on that basis he opined that the expenditure incurred was capital in nature. The income tax Appellate Tribunal has, however, recorded a finding of fact that the assessee was into more than one business activities, namely/apart from manufacturing aforesaid powdered soft drink under the name and style of "Tang", the assessee was also trading in soft drinks. Suspension of one of the activities, therefore, did not amount to closure of business of the assessee. It is also found that despite that turnover of the assessee in the assessment year 2005-06 became nil because of the stoppage in the manufacturing activity. However, in the assessment year 2006-07, it again raised to Rs. 3,02,15,240, which further appears to be more than Rs. 15 crores in the assessment year 2007-08. This clearly indicated that the manufacturing activity in the year in question was simply suspended and the said manufacturing of powdered soft drink could not be construed as single activity.

The Tribunal further relied upon the judgment of the Supreme Court in the case of Narain Swadeshi Weaving Mills Vs. The Commissioner of Excess Profits Tax, wherein the Supreme Court defined the expression "business" and held that business connotes some real substantial systematic and organised course of activity or a conduct with a set purpose. In the present case, since the assessee had been doing other business activity also, namely, "trading" it could not be said that the assessee had closed its business with the suspension of manufacturing powdered soft drink. We are quite in agreement with the order of the Tribunal. No substantial question of law arises.

The appeal is dismissed.