Is the
expenditure incurred on payment of retrenchment compensation and interest on
money borrowed for payment of retrenchment compensation on closure of one of
the textile manufacturing units of the assessee-company revenue in nature?
Case : CIT
v. DCM Ltd. (2010) 320 ITR 307 (Delhi)
Facts
The company claimed deduction of retrenchment
compensation paid to employees of the unit which had been closed down and
interest on money borrowed for payment of retrenchment compensation.
Apex Court in CIT v. Prithvi Insurance Co. (1967) 63 ITR
632 and arrived at the conclusion that there was interconnection, interlacing and unity of control
and management, common decision making mechanism and use of common funds in respect of all the
four units.
The High Court was of the opinion that the
payment of compensation to workers on closure of a textile mill unit is treated as a revenue expenditure
since after closure of the unit, the remaining business continued and there was
inter-connection in the functioning of the different units. Therefore, it
follows that if compensation is paid to workers on closure of the entire
business, the same would be a capital expenditure.
