R. G. A. Baker Vs. State of KeralA. - Court Judgment

GOVINDAN NAIR J. - This income-tax referred case arises out of an order of reference dated December 13, 1963, passed by the Agricultural Income-tax Appellate Tribunal, Trivandrum. The assessee concerned has been assessed to agricultural income-tax for the year 1957-58. The corresponding accounting period of 12 months ended on May 31, 1957. By a composite order of reference relating to the three assessment years 1957-58, 1958-59 and 1959-60, three questions have been referred to us. We are concerned in this appeal only with the latter two questions which read as follows :

'(1) Whether the compensation, gratuity and other payments made to retrenched employees are allowable expenditure under section 5 (j) in computing the taxable income and whether the Tribunal was justified in rejecting the claim

(2) Whether the Tribunal is right in rejecting the claims of the assessee in respect of written off dues of the tenant and book-keeping expenses under section 5 (j) and under section 3 and other provision of the Act ?'

Counsel on behalf of the assessee has stressed two points before us and these relate to a sum of Rs. 6,066-14-0 admittedly paid by way of retrenchment compensation and another sum of Rs. 6,055 written off as bad debts.

Dealing with the first of these amounts, it is seen that retrenchment compensation was paid because some part of the land from which agricultural income was derived was either acquired or sold by the assessee. The authorities have allowed a sum of Rs. 3,150 out of the total of Rs. 9,216-14-0 claimed. It is the balance which has been disallowed that is the subject-matter of question No. (1) formulated above. It is not clear whether this sum represents the amount paid to labour on account of acquisition by Government of some portion of the land or because part of it was sold voluntarily by the assessee. When there is a transfer and, as a result of the transfer, there is termination of services of the employees, there is no retrenchment ensuing. No doubt, by virtue of the provision in section 25FF of the Industrial Disputes Act, such termination of services may be deemed to be a retrenchment. We may add here that it is admitted by counsel on either side that the Industrial Disputes Act had been made applicable to the estate in question. There is nothing to indicate the terms of the transfer. It may be that the assessee had received full consideration because he has not been able to induce the transferee to undertake the liability to retrenchment compensation provided by the section. If that be so, it would not be correct to say that this amount paid should be an item of deduction in computing the agricultural income of the assessee. We therefore answer question No. (1) formulated above by saying that this is not an allowable deduction.

The sum of Rs. 6,055, we think, stands on an entirely different footing. It is admitted that the assessee was keeping his accounts on the mercantile system of accounting. From the records it is clear that this sum represents a bad debt written off. It is not suggested that the sum written off had not become irrecoverable during the year of account. There is no specific provision in the Agricultural Income-tax Act similar to section 10 (2) (xi) of the Indian Income-tax, Act 1922. But this does not answer the question as to whether the amount can be deducted. We think the decision of the Privy Council in Commissioner of Income-tax v. S. M. Chitnavis and that of the Supreme Court in Badridas Daga v. Commissioner of Income-tax should govern the question whether the deduction claimed can be allowed. In a recent decision of this court, I. T. R. No. 13 of 1964, the above decisions have been relied on and followed. We think the same principle must apply in deciding the question here. Applying that principle we hold that this item represents an allowable deduction. We accordingly allow this deduction and answer the second question formulated above in the negative, that is, in favour of the assessee and against the department.

This income-tax referred case is ordered on the above terms. There will be no order as to costs.