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Petitioner: AMBALA CANTT. ELECTRICITY SUPPLY CORPORATION LTD. VS Respondent: COMMISSIONER JUDGMENT
Court Name: Punjab and Haryana High Court Judge(s): Kulwant Singh Tiwana, Punchhi Title:AMBALA CANTT. ELECTRICITY SUPPLY CORPORATION LTD. vs COMMISSIONER
JUDGMENT
Reported As: 1983 PTD 166 Result: References answered accordingly Judgment JUDGMENT K. S. TIWANA, J.-The facts necessitating these references, to this Court are that the Ambala Electric Supply Corporation Ltd., Ambala Cantt. (hereinafter referred to as "the assessee"), had been carrying on the business of electric supply under the licence issued under the Indian Electricity Act, 1910 (hereinafter referred to as the "1910 Act"). The licence issued on 4 of July, 1932 was for 30 years and the supply of the electricity was commenced on 24th of April, 1935. Under section 6(l)(a) of the 1910 Act, the Punjab State Electricity Board, which was succeeded by the Haryana State Electricity Board on the bifurcation of the State of Punjab on 1st of November, 1966, exercised the option to purchase the said industrial undertaking together with the land, building, plant, machinery, etc., by virtue of the provisions of the 1910 Act. On the option of purchase being exercised by the Board, it (the undertaking) stood vested in it (the Board). The industrial under taking was transferred from the assessee to tire Punjab State Electricity Board on the midnight of 23rd and 24th of April, 1965. The assets of the assessee company were tentatively valued at Rs. 21,74,333. The assessee was not satisfied with the valuation and the matter was ultimately referred to arbitra--petition. The relevant previous year ended on 31st of March, 1966. During that year the assessee was paid Rs. 9,50,000 on account of the transfer of the industrial undertaking. The assessee though no longer doing the business of electric supply, continued to maintain an establishment and incurred an expenditure on account of salary of the managing director, telephone, travelling allowances, etc. During that period, the assessee returned a loss of Rs. 1,52,120. The I. T. O. Framed the assessment and assessed the assessee to a total income of Rs. 11,50,250.th
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The main points of controversy, which are before us, besides others, as referred below, arose between the assessee and the revenue. The first point is regarding Rs. 75,317 which the assessee expended during the financial years 1966-67, 1967-68 and 1968-65 on the maintenance of the staff, etc. The I. T. O. Rejected the claim of the assessee on the ground that this expen--diture was not incurred by it during the year under consideration, that is, the financial year 1965-66. On appeal by the assessee, the A. A. C. Set aside the decision of the I. T. O. On this question and deleted the addition of this amount. On appeal by the revenue, the Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") affirmed the decision of the A. A. C. In this regard. The second point of controversy between the parties is about the sum of R5. 1,36,000. This amount was paid by the assessee as retrenchment compensation to its workmen. Under section 25-FF of the Industrial Disputes Act, 1947. The I. T. O. Disallowed this amount. In the appeal filed by the assessee, the A. A. C. Reversed the order of the I. T. O. On further appeal by the revenue, the members of the Tribunal expressed divergent views. One member agreed with the A. A. C. To uphold his order while the other expressed art opinion for its reversal. On this difference of opinion the matter was 7eferred to Mr. S. Ranganathan, a third member, Mr. S. Ranganathan disagreed with the A. A. C. And, by a majority, this order of the A. A. C. Was setaside and that of ITO was restored. The third point relates to the item of Rs. 3,62,390 received by the assessee as consideration for the sale. The I. T. O. Repelled the contention of the assessee to treat this as a solatium. The assessee lost the case about this, item of money up to the Tribunal. On the request of the revenue as well as the assessee, the Tribunal under section 256(1) of the Act framed the following two questions and referred those to this Court :- "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenses of Rs. 75,317 incurred by the assessee on the maintenance of the staff and establish--ment are expenses as contemplated by section 48(i) of the Income-tax Act, 1961, and consequently allowable ? (2) Whether the sum of Rs. 1,36,000 representing retrenchment com--pensation has been rightly held by tae Tribunal to be not allowable deduction either tinder section 28 or under section 37 of the Income---tax Act, 1961." Regarding the amount of Rs. 3,62,390 the assessee formulated the following question and wanted its reference to this Court under section 256(1) of the Act "Whether, on the facts and in the circumstances of the case and in accordance with the provisions of law, the Tribunal was justified in holding that a sure of Rs. 3,62,390 received by virtue of the proviso to section 7-A(A), the Indian Electricity Act, by the assessee is not a capital receipt and forms part of the sale price?" The Tribunal did not agree with the assessee on this point and refused its prayer. The assessee filed Income-tax Case No. 21 of 1977 (Ambala Cantt. Electric Supply Corporation Ltd. v. C. I. T.) with a prayer that the Tribunal be directed to refer the question to this Court of a decision. This is how these References Nos. 92 to 94 of 1.976 and Income-tax Case No. 21 of 1977 are before us. As all these references and the Income-tax Case No. 21 of 1977 arise out of the same case between the parties, they shall be decided together. Rs. 75,317 are claimed by the assessee as expenses of the staff, which he had to retain to see the transfer through and also to finalise the compensation regarding the assets of the assessee in the industrial undertaking transferred to the Haryana State Electricity Board. Although the management of the undertaking had passed hands on the midnight of the 23rd and 24th of April, 1965, that was not a final thing for. The assessee. The assets of the undertaking had to be assessed and valued for the purpose of the fixation of the fair price. Payment of compensation was a necessary part of the transfer of the undertaking and the maintenance of the staff was necessary to safeguard the interests of the assessee. It is an admitted position in the case that the matter of
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compensation could not be settled amicably and had to be referred to arbitration. This shows that the assessee and the Haryana State Electricity Board disagreed on the fixation of the fair price. In order to have the maximum price on account of the transfer of the undertaking the assessee had to maintain the necessary staff. Compensation as an incident of the transfer was to be received by the assessee and the expenditure so incurred on the staff was in connection with it for pursuing the matters with the concerned authorities, including arbitration. These expenses, which the assessee had to incur, are covered under section 48(i) of the Act and the case of the assessee was rightly accepted by the Tribunal We do not find any infirmity in the judgment of the Tribunal on question No. 1 and answer against the revenue. Mr. B. S. Gupta, learned counsel for the assessee, before dealing with he matter covered by question No. 2, urged that this question as framed is ;or its consideration under sections 28 and 37 of the Act. According to Mr. Gupta, section 48 of the Act is also attracted for application to it. He has requested this Court for a reframing of the question in order to include section 48 in this question along with sections 28 and 37. Mr. D. N. Awasthy, learned counsel, appearing on behalf of the revenue, has objected to it on the ground that nowhere before the I. T. Authorities, including the Tribunal, section 48 of the Act was even remotely referred by the assessee. According to Mr. Awasthy, the assessee never tried to take the benefit of section 48 and it is for the first time that it his urged this point before this Court, which has only an advisory jurisdiction and thus it cannot ask for a refraining of the question as suggested on its behalf by Mr. Gupta. According to Mr. Awasthy, this will not be a simple reframing of the question but making out an altogether new one. Mr. Awasthy has further stated that this Court has to decide the question as it has been framed by the Tribunal at the instance of the assessee. We have gone through the orders passed by the I. T. O., the A. A. C. And the Tribunal and find that before these authorities the assessee had not referred to section 48 of the Act even remotely. Since the question of the attraction of section 48 of the Act was not raised before the I. T. Authorities, they never had the occasion to consider it. The Tribunal, while hearing the appeal under the Act, no doubt, has wide powers. It was not afforded an occasion to consider the impact of section 48 of the Act on the case. The form of the application to be submitted to the Tribunal for referring the question to the High Court is prescribed by the Act. Section 48 was not invoked for inclusion in that application. It has been raised for the first time on behalf of the assessee before this Court. It cannot be said that the assessee or the persons appearing on its behalf to argue its case before the I. T. Authorities were not cognizant of the provision of section 48. For the first question they have reclined against section 48 of the Act for help. It was thus a case of deliberate omission in regard to the utilization of section 48 of the Act in regard to the sum of Rs. 1,36,000 as is covered by question No. 2. The jurisdiction of the High Court in a reference under section 256(1) of the Act is a special one. It is different from its ordinary jurisdiction as a civil Court. The High Court hearing a reference under this provision does not exercise any appellate, revisional or supervisory jurisdiction. It acts purely in its advisory capacity on a reference which brings the case before it under section 256(1) of the Act. It gives advice to the Tribunal, which, ultimately, has to give effect to that advice. It is of the essence of such a jurisdiction that this Court can decide only questions which are referred to it and not any other question. In C. I. T. v. Scindia Steam Navigation Co. Ltd. ((1961) 42 I T R 589 (SC)), this matter was considered by the Supreme Court and the matter was divided into four parts for consideration (p. 611) "The result of the above discussion may thus be summed up (1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.
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(2) When a question of law is raised before the Tribunal but the Tribunalfails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order. (3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order. (4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order not--withstanding that it may arise on the findings given by it. Stating the position compendiously, it is only a question that has been raised before or decided by the Tribunal that could be held to arise out of its order." The Supreme Court again in C. G. T. v. Snit. Kusumben D. Mahadevia ((1980) 122 I T R 38) considered the position and following Scindia Steam Navigation's case, observed (p. 48) "Now, it is difficult to see how the question whether the valuation of the shares should have been made on the basis of the break-up method by reason of rule 10, sub-rule (2), of the G. T. Rules, can be required to be referred by the Tribunal to the High Court. It is well-settled that no question can be referred to the High Court unless it arises out of the order of the Tribunal and, as pointed out by this Court in C. I. T. v. Scindia Steam Navigation Co. Ltd. (1961) 42 I T R 589, a question of law can be said to arise out of the order of the Tribunal only if it is dealt with by the Tribunal or is raised before though not decided by the Tribunal and a question of law not raised before the Tribunal and not dealt with by it in its order cannot be said to arise -wt of its order, even if on the facts of the case stated in the order the question fairly, arises." The question now raised -by Mr. B. S. Gupta falls under category 4 of the observations of the Supreme Court, quoted above from Scindia Steam Navigation Company's case (1961) 42 I T R 589, as it was not raised before the I. T. Authorities or the Tribunal, nor was it considered by them. The mere fact that from the facts of a case by the application of section 48 of the Act relief could be claimed by the assessee, it does not enable this Court to recast the question to suit the interest of the assessee. This Court, acting in a limited jurisdiction of advisory nature, cannot step beyond the limits of the questions referred to it by the Tribunal to reframe or recast the question by adding in it that ground which was not raised before the Tri--bunal. We do not find it to be a fit case for consideration even for referring the case back to the Tribunal to re-submit a question after framing it. Reverting to question No. 2, after declining to prayer of Mr. Gupta, we find that it is a common case of the parties that the assessee acting under section 25-FF of the Industrial Disputes Act issued notices to the workmen working in the industrial undertaking, which was transferred in accordance with section 25-FF of the same Act, determining their services, coinciding it with the date of transfer of the undertaking in favour of the Punjab State Electricity Board. The retrenchment compensation, which amounts to, Rs. 1,36,000 is being claimed as an allowable expenditure under section 28 or section 37 of the Act. The manner in which it was decided by the I. T. O., the A. A. C. And the Tribunal has been noticed in the earlier part of the judgment. The majority view of the Tribunal to reach a decision against the assessee drew support from C. I. T. v. Gemini Cashew Salts Corporation ((1967) 65 I T R 643 (SC)) Mr. B. S. Gupta, learned counsel for the assesses, has argued ea at the Gemini Cashew Sales Corporation's case is distinguishable and is not attracted for application to the facts of - the case, as the facts of that case did not fall within the purview of section 25-FF of the 19dustriai Disputes Act. According to Mi. Gupta, so long as the under--taking was not transferred, the assessee could, when its transfer became definite, being settled in advance, take advantage of the provisions of the Industrial Disputes Act by issuing notices for retrenchment to the workmen of the undertaking to meet the liability which was a legal one, under the Industrial Disputes Act. The argument of Mr. D. N. Awasthy on the other band mainly based on the Gemini Cashew Sales Corporation's case and Modi Electric Supply Co. v. C. I. T. ((1980)126 I T R 403 (P & 8)), is that before the actual transfer no right to retrenchment compensation bad accrued to the workmen, being a
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right based on a contingency, and the assessee could not issue any notice to maximise his expenses. The liability, according to Mr. Awasthy, of compensation accrued only on the transfer of the undertaking and as such she amount so expended was not as allowable deduction under any provision of the Act. "25-F. No workman employed in any industry who has been in con--tinuous service for not less than one year under an employer shall be retrenched by that employer until-- (a)the workman has been given one month's notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workmen has been paid in lieu of such notice, wages for the period of the notice Provided that no such notice shall be necessary if the retrenchment is under an agreement which specifies a date for the termination of service. (b) the workman has been paid, at the time of retrenchment, compensa--petition which shall be equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months ; and (c) notice in the prescribed manner is served on the appropriate Government of such authority as may be specified by the appropriate Government by notification in the Official Gazette. 25-FF. Where the ownership or management of an undertaking is transferred, whether by agreement or by operation of law, from the employer in relation to that undertaking to a new employer, every workman who has been in continuous service for not less than one year in thin undertaking immediately before such transfer shall be entitled to notice and compensation in accordance with the provisions of section 25-F, as if the workman had been retrenched Provided that nothing in this section shall apply to a workman in any case where there has been a change of empl-3yers by reason of the transfer, if- (a) the service of the workman has not been interrupted by such transfer ; (b) the terms and conditions of service applicable to the workman after such transfer are not in any way less favourable to the workman than those applicable to him immediately before the transfer ; and (c) the new employer is, under the terms of such transfer or otherwise, legally liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer." Mr. Awasthy stated that the transfer of the undertaking did not include workmen and there was no obligation on the Haryana State Electricity Board to absorb them. Mr. Awasthy is correct in this assertion as there is no provision in the 1910 Act for the taking over of the workman by the trans-- feree. It is again not disputed by the revenue that the workmen working in the industrial undertaking were not taken over by the State Electricity Board after its transfer. The services of the workmen, working in tire under--taking, under the assessee before its transfer, were interrupted as they were not taken over by the State Electricity Board. The affected parties can assess the results which flow from the impact of a statute. The interruption of the service of the workman immediately on transfer may have been known to the assessee even prior to the actual transfer of the undertaking. Proviso to section 25-FF of the Industrial Disputes Act thus does not apply to the case because of the interruption of the service of the workmen. By the fiction created by section 25-FF of the Industrial Disputes Act, the termi--nation of the services of the workmen because of the transfer fell within the ambit of the definition of "retrenchment" as given in section 2(oo) of the Industrial Disputes Act. The words in section 25-FF "immediately before such transfer" have been suggested by Mr. Awasthy to mean a little before the actual transfer of the industrial undertaking. In his view these words do not Postulate any prior time much less a period of one month of more. When a notice is to be issued in accordance with the provisions of section 25-F of the Industrial Disputes Act, it
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cannot be any notice short of one month. If one month's notice is to be given at the actual time of transfer or a few minutes or a few hours before that, then, in our view, it will be only an ex--ercise in futility. It will lead to the swelling of the expenses of the trans--feror adding to his loss on the transfer of the undertaking. Section 25-FF is a provision incorporated for the mutual benefit of the employers and the workmen. If the termination of the workmen. Had come about by the actual transfer, there being no obligation for the transferee to absorb them, the retrenchment compensation becomes payable because of such termina--petition and it had to be paid by the transferor, that is the assessee, because of the provisions of section 25-FF. If the assessee had paid cash retrenchment compensation to the workmen at 11.55 p.m. On 23rd of April, 1965, being certain of the transfer of the industrial undertaking, then, considering the words "immediately before such transfer", in the way suggested by Mr. Awasthy, it would have been ail right and it could claim it as an allow--able deduction a: it was in the course of its business. If that can be so why cannot the assessee take the other recourse provided by law in the same provision, that is, given one month's notice for retrenchment when he is equally certain of the time and date of transfer, which is by operation of law? Although the reference to the history and object of the introduction of sections 25-F and 25-FF in the Industrial Disputes Act need not be gone into, a brief reference to it seems unavoidable at this stage. The rights created by section 25-F are based on humane public policy as a safety against involuntaryunemployment which may cause dislocation to trade and industry and economic insecurity. The object of section 25-F of the Industrial Dis--putes Act was that an employer could relieve himself of the economic dead weight of surplus labour and at the same time the employee should not be thrown or: the road for no fault of his. While giving option in given cases to the employer to shake off such economic dead weight it assured the employee and his family of some partial protection to tide over the hard period of unemployment. Section 25-FF was introduced to safeguard the rights of workmen, who because of the transfer of an undertaking could not be em-- ployed by the transferee. Section 25-F of the Industrial Disputes Act prescribes that in all cases of transfer agreement or by the operation of law which do not fail under the proviso, on a transfer of the ownership or management of an industrial undertaking, a workman, who has been in continuous service of not less than one year in that undertaking immediately before the transfer, shall be entitled to notice and compensation in accordance with the provisions of section 25-F. This is because the sanction equates such a termination of service with retrenchment as defined in section 2(oo) of this Act. It matters little who initiates the proceedings towards the termination. If the employer, who has a prior notice of the date and time of the transfer of the industrial undertaking, which is definitely fixed, takes steps to issue retrenchment notice in accordance with law governing the industrial relations resulting in the creating of a liability regarding which deductions can be claimed under the Income-tax Act, then it can reap the benefit of that. The transferor of the undertaking, when the control of management still vests in it, can create that liability, which though based on legal fiction, is real and effective and can take steps to minimise his losses by issuing retrenchment notices as provided by section 25-FF of the Industrial Disputes Act. The language of the principal clause of section 25-FF makes it clear that if the right of the retrenchment compensation accrues to the workman, then it must be a right to receive compensation from the employer, who was its (undertak--ing's) owner up till the date and time of transfer. The only thing to be guarded against is that the retrenchment should not he by way of punishment, but in anticipation of a transfer. The foundations of the arguments addressed on behalf of the revenue, as noticed earlier, are based on Gemini Cashew Sales Corporation's case. In that case, the facts were"Two persons, Walter and Ramasubramony, carried on business in cashewnuts as partners in the name and style
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of Messrs Gemini Cashew Sales Corporation. The partnership was dissolved on the death of Ramasubramony on August 24, 1957, and the business was taken over and continued by Walter on his own account. The services of the employees were not interrupted and there was no alteration in the terms of employment of the employees of the establishment". In Gemini's case because of provisions of section 25-Fr no right to the workmen accrued to receive retrenchment compensation. It was observed by the Supreme Court in that case (p. 647) "In the view we take, that the allowance claimed is not a proper outgoing, or allowance in computing the profits of the assessee, we do not express any opinion on the question whether the workmen of the undertaking became entitled to retrenchment compensation on the transfer of the undertaking to Walter." The Supreme Court did not in that case advert to decide the, question of entitlement of the workmen to receive compensation. The fact of Gemini's case were not similar to the one in hand.' In this case, because of known certainly of the non-absorption of the workmen by the transferee of the undertaking, that is, the Haryana State…
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