|The Tax Publishers2020 TaxPub(DT) 5020 (Karn-HC) : (2021) 430 ITR 0494 : (2021) 277 TAXMAN 0315
INCOME TAX ACT, 1961
Expenditure incurred by assessee company towards compensation paid to employees of erstwhile company was allowable.
Business expenditure - Allowability - Voluntary retirement compensation paid to employees taken over under share purchase agreement - Commercial expediency
Assessee claimed deduction of expenditure incurred towards payment of voluntary retirement compensation of employees taken over from M/s. Elpro International, as per share purchase agreement. AO disallowed deduction on the ground that expenditure was not incurred solely and exclusively for the purpose of business. Held: In terms of concerned share purchase agreement, assessee had to take over certain assets of Elpro International and 184 employees of said company were also to be taken over by assessee. A separate agreement termed as Equipments Sales and Employees Absorption Agreement was also executed between assessee and Elpro International which was part of share purchase agreement. Under said agreement, employees were given choice of continuity of service and it was also provided that their service would be considered from the date they have joined M/s. Elpro International. Thereafter, assessee formulated scheme for retirement benefit to employees who availed benefit of the scheme. Under the scheme, compensation was paid not only for past services but also for remaining years of service with the company. Employees had also filed a complaint against assessee under Labour Laws and therefore, assessee had to offer a scheme to avoid any kind of future problems. The scheme was admittedly sanctioned by Chief Commissioner for exemption under section 10(10C) and it was a contractual obligation and was an ascertained liability. Accordingly, expenditure incurred by assessee-company under the scheme was to be treated as an item of expenditure on the ground of commercial expediency and same was allowable under section 37(1).
FAVOUR : In assessee's favour.
A.Y. : 2000-01
IN THE KARNATAKA HIGH COURT
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