THE COMMISSIONER OF INCOME TAX-1 vs. M/S. TCM LTD, KALAMASSERY

The learned Senior Counsel, Government of India (Taxes) would argue that there was no determination of facts as found in K.Ravindranathan Nair v. Commissioner of Income Tax [(2001) 247 ITR178 (SC)]. It is also found by the Assessing Officer that the retrenchment compensation was not paid in the relevant previous year. Since none appears for the appellant, we appointed Sri. Ajay V Anand as Amicus Curiae. Sri Ajay would contend that the assessee has been running three units, all manufacturing chemicals. The Tribunal has specifically referred to the same in its order and has found unity of management in which circumstances, there is no question of a further finding on inter-lacing and inter-connection of the three units. The learned Amicus Curiae would rely on the judgment of the High Court of Calcutta in 2005(272) ITR 193 (Cal)[Jayasree Tea and Industries Ltd. v. Commissioner of Income Tax].

We do not think that the finding of the Assessing

We notice that the Tribunal has examined the facts and found that the units at Mettur, Tuticorin and Kalamassery were all dealing in chemicals and the Kalamassery Unit was the largest unit which however, was incurring huge loss. It was hence the assessee decided to close down the Kalamassery Unit so as to facilitate the profitable carrying on of the other two units, situated in Mettur and Tuticorin. The retrenchment compensation provided for was as per the agreement with the labour unions entered into in the relevant previous year and as such it becomes an ascertained liability accruing in the relevant previous year. The payment made in the subsequent years was only for reason of generation of funds by sale of assets being occasioned later to the relevant previous year.

K.Ravindranathan Nair was a case in which the assessee had ten units carrying on cashew processing which constituted a single business. Due to huge loss accruing,a lock out of four units and later closure of the same was effected, by reason of which there was payment of retrenchment compensation. Again the question arose as to whether the retrenchment compensation could be claimed as a deduction under Section 37 of the Income Tax Act. The Tribunal found on the basis of the facts placed before it that only one set of accounts were maintained for all the ten units. There was in existence one central financing system. All the units were financed by banks which accounts were operated from the Head Office and cashew was purchased for processing, by the Head Office for all the units together. It is on these facts that it was found that there is unity of management and control.

In Jayashree Tea Industries Ltd., the Tribunal though found that the assessee had a number of units spread over in various states of the Country, it was held that mere satisfaction of test of unity of control, would not by itself suffice especially when there were various types of business carried on by the assessee, which does not constitute a single indivisible business. The Calcutta High Court held so in paragraph 29:- “Applying the above test in the context of the present case, it appears that the learned Tribunal had found on the facts that there was unity of management. After having so found it had purported to hold that inter-lacing, inter-connection and inter-dependence was not proved. As discussed above, the conclusion is not dependent on this test alone. It is the totality of the facts that will determine the question. Once control and management is found to be the same the unity is established;inter-connection, inter-lacing and inter-dependence is a fait accompli. The conclusion arrived at by the learned Tribunal on the facts established does not seem to conform to the principles of law as discussed above. On the materials disclosed, it is clear that the business was one and the same.”

In the present case also, we see that the Tribunal had found unity of control and management and it is not as if different lines of businesses were carried on in the three units. All the three units were engaged in manufacturing of chemicals and hence the three units were found to be carried on under the very same management as a single business. We are of the opinion that there is no substantial question of law arising from the order of the Tribunal and hence the appeal is rejected. Parties are left to suffer their respective costs. K.VINOD CHANDRAN Judge ASHOK MENON Judge jma