Pandian Roadways Corporation Ltd. vs Commissioner of Income Tax

Ramanujam, J.—The assessee seeks a directions in this petition to the Tribunal to refer the following two questions as arising out of the

order of the Tribunal :

Whether the Tribunal was right in law in holding that the gratuity liability relating to the employees of Pandian Roadways Corporation Ltd.,

transferred to Kattabomman Transport Corporation Ltd., is not an allowable deduction ?

Whether the Tribunal was right in holding that the payment was on capital account ?

But the questions are covered by the decisions of this court in Stanes Motors (South India) Ltd. Vs. Commissioner of Income Tax, ,

Commissioner of Income Tax Vs. Salem Bank Ltd., and CIT v. Pathinen Grama Arya Vysya Bank Ltd. [1977] 100 ITR 788. The assessee in this

case in engaged in running a transport service. A port of its business was taken over by the Kattabomman Transport Corporation Ltd., along with

the buses running on the routes taken over by the kattabomman Transport Corporation Ltd., and its employees on January 1, 1974. At the stage

of transfer of a portion of the business, a sum of Rs. 9,06,104 was paid to the kattabomman Transport Corporation Ltd.

The assessee, in the course of the computation of the assessee''s income by the ITO for the assessment year 1974-75, claimed deduction of the

said sum as revenue expenditure. the ITO rejected the claim for deduction. The disallowance of the claim was upheld by the AAC. the assessee

took the matter in appeal to the Income Tax Appellate Tribunal. The Tribunal also has taken the view that the claim for deduction of the said sum

cannot be allowed. The Tribunal has factually found that it is only a provision which is transferred to another public sector organisation, that as a

provision it cannot be allowed because admittedly it does not satisfy the conditions under s. 40A(7) nor has there been an actual payment to the

employees concerned. Hence, according to the Tribunal, in any view of the matter, the transfer of the said sum cannot be treated as coming for

deduction. The Tribunal also took the view that the transfer of the amount to the transferee cannot be taken to be a charge on the profits for the

year. The Tribunal has relied in support of its view on the decision of this court in Stanes Motors (South India) Ltd. Vs. Commissioner of Income

Tax, . Before the Tribunal, the decision of the Keralal High Court in Commissioner of Income Tax Vs. Standard Furniture Co. Ltd. (In

Liquidation), , was relied on, but the Tribunal has distinguished the case on facts and purported to follow the decision of this court in Stanes

Motors (South India) Ltd. Vs. Commissioner of Income Tax, . We find that the decision in Stanes Motors (South India) Ltd. Vs. Commissioner of

Income Tax, , had been followed in Commissioner of Income Tax Vs. Pathinen Grama Arya Vysya Bank Ltd., and Commissioner of Income Tax

Vs. Salem Bank Ltd., . The view taken in Stanes Motors (South India) Ltd. v. CIT [1975] 100 ITR , is also in conformity with the view expressed

by the Supreme Court in Commissioner of Income Tax, Kerala Vs. Gemini Cashew Sales Corporation, Quilon, . In view of the preponderance of

judicial opinion, we do not find any justification for directing a reference on the question set out above.

The learned counsel for the assessee has, however, pointed out that a different view has been taken by this court in Commissioner of Income

Tax Vs. Sri Venkateswara Bank Ltd., and Commissioner of Income Tax Vs. Srinivasa Perumal Bank Ltd., . But we find that in those cases the

gratuity liability has been worked out and those amounts have actually been paid to the employees whose services with the assessee had come to

an end after the transfer of a portion of the business. On the facts of these cases, it has rightly been held that the actual payment of gratuity to the

employees can be taken to be a revenue expenditure entitled to deduction., But in this case there is no direct payment of gratuity to the employees

who have been transferred nor the conditions laid down in s. 40A(7) are satisfied.

Therefore, we are not inclined to refer the above questions. The petition is, therefore, dismissed. No costs.