COMMISSIONER OF INCOME TAX Vs. JAY SHREE TEA AND INDUSTRIES LTD

JUDGEMENT

(1.) THE Tribunal has referred the following questions of law under s. 256(1) of the IT Act, 1961 ('the Act') to this Court :

(2.) IN this proceeding the assessment year involved is 1978-79 for which the relevant year of account is the year ended on 31st March, 1978.

(3.) THE facts found by the Tribunal are as under : The assessee is a limited company deriving income from business of tea and shipping. The assessee sold one of its tea estates during the previous year under consideration as a going concern for a net consideration of Rs. 16 lakhs. In addition, the purchaser took over the assessee's liability to pay gratuity to the extent of Rs. 6,43,500. Taking these two amounts together, the sale proceeds can be said to be Rs. 22,43,500. During the year under consideration the assessee claimed the balance of the sum of Rs. 2,91,134 (being the balance of the sum of Rs. 6,43,500 after considering the amount of Rs. 3,50,846 already allowed) as liability accrued against the assessee up to the date of sale. The case of the assessee was that it was liable to pay the amounts in respect of the services rendered to it up to the date of sale and so, it claimed the deduction as stated above before the ITO. The ITO disallowed the claim of Rs, 2,91,134 on the ground that cl. 8 of the deed of sale dt. 5th Aug., 1977 stated that the gratuity due to the staff in respect of the services up to the date of sale became the liability of the purchaser. According to the ITO the purchaser agreed to pay the said liability of the assessee without any reference to the sale proceeds. In addition to the above disallowance the ITO added back the sum of Rs. 3,50,846 which had been allowed in the earlier years on the ground that the liability in respect of the said amount ceased to exist and so became taxable under s. 41(1) of the Act. The assessee appealed to the CIT (A), who held that this was not a case of cessation of liability and even deleted the addition of Rs. 3,50,846. However, he agreed with the ITO that the sum of Rs. 2,91,134 is not admissible as deduction as the purchaser had taken over to discharge that liability. The assessee appealed to the Tribunal against the disallowance of Rs. 2,91,134. On the other hand, the Department appealed to the Tribunal against the deletion of Rs. 3,50,846 by the CIT(A) from the total income of the assessee. The Tribunal considered both the grounds together and held as below :