JUDGMENT
Satish Chandra, C.J.
1. The question of law for our consideration is whether retrenchment compensation paid by a business firm on the closure of its business is an admissible deduction under Section 37 of the I.T. Act. The Tribunal upheld the case of the revenue and repelled the claim of the assessee.
2. The Supreme Court in CIT v. Gemini Cashew Sales Corporation [1967] 65 ITR 643, held that retrenchment compensation paid to an employee by the person to whom the business was transferred was not properly admissible as a deduction because the liability to pay retrenchment compensation arises for the first time on closure of the business and not before. It does not arise in the carrying on of the business but on account of its transfer. During the entire period that the business was continued, there was no liability to pay retrenchment compensation. The liability which arose on transfer of the business was not of a revenure nature and hence was not deductible under Section 10. Further, since the liability under Section 25FF of the Industrial Disputes Act, 1947, was wholly contingent and did not raise any definite obligation during the whole of the period that the business was carried on, it could not fall within the expression expenditure laid out or expended wholly and exclusively for the purpose of the business. This authority is directly in point. A case of closure is identical to that of transfer of business. In view of this Supreme Court decision, we answer the question referred to us in the affirmative, in favour of the department and against the assessee. The Commissioner will be entitled to costs which are assessed at Rs. 200.