JUDGMENT Ratnam, J. 1. The assessee is a private limited company. On September 15, 1973, the company passed a resolution for winding up the company and during the previous year relevant to the assessment year 1974-75, the company retrenched its employees and paid them retrenchment compensation of Rs. 1,06,044. In the course of the assessment proceedings for the assessment year 1974-75, the assessee claimed the amount of retrenchment compensation as an admissible deduction and the Income-tax Officer allowed that claim. However, the Commissioner of Income-tax, on a scrutiny of the records, found that the order of the Income-tax Officer was prejudicial to the interests of the Revenue in that the claim of the assessee for deduction of Rs. 1,06,044 paid as retrenchment compensation to the employees was really not admissible, as the payment was made consequent upon the closure of the business and issued a notice under section 263 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). On a consideration of the objection raised by the company, the Commissioner of Income-tax, adverting to the circumstances under which the company came to be wound up, took the view that the payment of Rs. 1,06,044 was not made in the course of carrying on the business or for the purpose of furthering the cause of carrying on the business or to keep it going, but only because the business was closed down and, therefore, it was not an admissible deduction under section 37 of the Act. The Income-tax Officer was directed to disallow the claim for deduction of Rs. 1,06,044 and increase the total income of the assessee by that amount and also to take steps to determine the additional amount of income-tax and recover the same. Aggrieved by this, the assessee preferred an appeal before the Income-tax Appellate Tribunal and it was found that the retrenchment compensation was paid not for the purpose of keeping the trade going generally to earn profits, but to discharge the liabilities to facilitate the winding up and in view of that finding, the Tribunal agreed with the conclusion of the Commissioner of Income-tax that the amount in question was not an admissible deduction. That is how, under section 256(1) of the Act, the following question of law, at the instance of the assessee, has been referred to this court, for its opinion : "Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that retrenchment compensation of Rs. 1,06,044 paid by the applicant during the previous year is not an allowable deduction in computing the income of the applicant for 1974-75, since it was not incurred for the purpose of the business ?" 2. The assessee company was carrying on business as distributors of calculating machines and other office equipment. At an extraordinary general meeting held own September 15, 1973, it was resolved that the company be wound up voluntarily under the provisions of section 484 of the companies Act and to appoint a liquidators for the purpose of voluntary winding up of the company. In the explanatory note under section 173 of the companies Act, appended to the notice for the holding of the meeting on September 15, 1973, it was stated that owing to the saddling of the company with a dead stock of spares to the extent of two lakhs of rupees and the absence of the prospect of getting substantial higher income, the business of the company will be greatly affected and with a view to reduce the expenditure of the company in view of the diminishing income of the company year after year, it was thought worthwhile to wind up the company voluntarily and pay the dues to the employees and clear the liabilities. Pursuant to the notice referred to earlier, on September 15, 1973, it was resolved to wind up the company voluntarily and to appoint four persons as joint liquidators. After September 15, 1973, no fresh contracts were executed, but the contracts in existence on September 15, 1973, came to be performed. Since the company went into liquidation from September 15, 1973, and September 16, 1973 to December 31, 1973, and there is no dispute that the amount of retrenchment compensation in a sum of Rs. 1,06,044 had been paid during the accounting year. The question that arises for consideration is, whether the assessee is entitled to claim this amount as an allowable deduction under section 37(1) of the Act in computing the income chargeable under the head "Profits and gains of business". 3. 1,06,044 had been paid during the accounting year. The question that arises for consideration is, whether the assessee is entitled to claim this amount as an allowable deduction under section 37(1) of the Act in computing the income chargeable under the head "Profits and gains of business". 3. Under section 37(1) of the Act, any expenditure laid out or expended wholly and exclusively for purpose of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". In this case, the amount of Rs. 1,06,044 had been paid by the assessee by way of retrenchment compensation under section 25FFF of the Industrial Dispute Act. That liability arose on the closure of the undertaking, wherever was the cause for such closure. The notice for the meeting on September 15, 1973 as well as the explanatory note appended thereto, when considered in the light of the resolutions passed to voluntarily wind up the company and to appoint liquidators, clearly establishes that a decision had been taken to wind up the company dictated by reasons of economy, financial staring any and dwindling business. The notices issued to the workmen referred to in paragraph 6 of the order of the Tribunal show that the decision had been taken to wind up the business of the company and that the employees will be retrenched from the service of the company one month from the date of service of the notice and not later than the date of completion of the winding up proceedings and the dissolution of the company. Section 484(1)(b) of the Companies Act, 1956, provides for the winding up of a company voluntarily, if the company passes a special resolution that the company be wound up voluntarily. On September 15, 1973, such a special resolution had been passed by the company. Under section 486 of the Companies Act, it is provided that a voluntary winding up shall be deemed to commence at the time when the resolution for voluntary winding up is passed. That means, the winding up of the assessee-company shall be deemed to have commenced on and from September 15, 1973. Under section 486 of the Companies Act, it is provided that a voluntary winding up shall be deemed to commence at the time when the resolution for voluntary winding up is passed. That means, the winding up of the assessee-company shall be deemed to have commenced on and from September 15, 1973. Section 487 of the Companies Act declares the effect of voluntary winding up on the company and states that in the case of voluntary winding up, the company shall, from the commencement of the winding up, cease to carry on its business, except so far as may be required for the beneficial winding up of such business. Statutorily, therefore, the assessee-company ceased to carry on business on and from September 15, 1973. It is in the background of the aforesaid statutory provisions that the claim of the company has to be considered. 4. Earlier, it has been noticed that the very object of resorting to a voluntary winding up of the company was to mitigate the financial strain and to secure deliverance from the business activities carried on by it. Obviously, therefore, the idea was not to carry on the business of the company any longer, but to put an end to its business activities. The decision to put an end to the business activities of the company adversely affected the workmen employed in the company by their retrenchment consequent upon the decision taken to close down the business activities of the company. It may be that there was no wholesale retrenchment of all the workmen at the same time, but it is common ground that most of the employees were retrenched. While deciding not to carry on its business activities, the company was also alive to its responsibilities not to turn all the workmen adrift, except on payment of retrenchment compensation under section 25FFF of the Industrial Disputes Act. While deciding not to carry on its business activities, the company was also alive to its responsibilities not to turn all the workmen adrift, except on payment of retrenchment compensation under section 25FFF of the Industrial Disputes Act. The liability to pay retrenchment compensation arose consequent upon the decision taken to close down the company and its business activities and not to carry on its business and the service of notices to that effect on the employees of the company was also only in furtherance of the decision it is only the decision to close down the business of the company that gave rise to the need for payment of retrenchment compensation and the issue of notices to that effect on the employees of the company and that cannot be construed in any manner as an attempt to further the cause of business or doing something that will aid in the carrying on of the business or prolonging the life of the business with a view to make profits. Considering the notice of the meeting, the explanatory statement, the resolutions passed and the contents of the notice issued to workmen it is clearly made out that the carrying on of the business of the company was farthest from the minds of those responsible for the running of the fairs of the company and, therefore, the payment of retrenchment compensation by the assessee-company cannot be considered to be an item of expenditure laid out or expended wholly and exclusively for the purpose of the business. The scope and content of the expression "for the purpose of the business" have been well brought out in the following passage of the decision of the Supreme Court in CIT v. Malayalam Plantations Ltd. (headnote) : "The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business ..." 5. Applying the aforesaid test, it is seen that the expenditure incurred by the assessee in this case cannot be said to be for the carrying on of the business or that the assessed incurred such expenditures a person carrying on the business, for, the origin of liability to pay retrenchment compensation arose out of a decision taken to close down the business and secure deliverance from business activities rather than to keep such activities going for the purpose of curring on of the business of the company. We are, therefore, of the view that the retrenchment compensation paid by the assessee is not an allowable deduction under section 37(1) of the Act. 6. We may now make a brief reference to the decisions relied on by counsel on both sides. Season J. David and Co. P. Ltd. v. CIT , relied on by learned counsel for the assessee, does not in the supreme Court has observed that it is too late in the day to treat the expenditure incurred by management in paying reasonable sums by way of gratuity, bonus, retrenchment compensation, etc., as not business expenditure. However, that observation has to be read and understood in the factual background which gave rise to that case and it is important to notice that in that case, the company was neither dissolved nor was its business undertaking sold. We have earlier noticed now in this case there was a resolution to wind up the company and to stop its business activities to contain the losses and how as a result of the operation of the provisions of the Companies Act, the company could not carry on any business activity after resolving to voluntarily wind up. Even on the assumption that there were a few transactions after September 15, 1973, they could at best be regarded as intended to facilitate the winding up and not in furtherance of the carrying on of the business activities of the company, earlier resolved to be wound up. We ma also refer to the circumstances that after September 15, 1973, no fresh contracts were entered into, but the prior commitments alone came to be discharged and that is attributable only to the act of the liquidators with a view to wind up the affairs of the company, incident tally fulfilling the obligations then in existence. We ma also refer to the circumstances that after September 15, 1973, no fresh contracts were entered into, but the prior commitments alone came to be discharged and that is attributable only to the act of the liquidators with a view to wind up the affairs of the company, incident tally fulfilling the obligations then in existence. We are therefore, of the view that the decision in Season J. David and Co. P. Ltd. v. CIT cannot be pressed into service by counsel for the assessee. In CIT v. Gemini Cashew Sales Corporation , relied on by learned counsel for the Revenue, a firm stood dissolved on the death of one of the partners and the surviving partner tool over and continued the business and in the process of settling the accounts of the firm, a certain amount was taken into account as retrenchment compensation payable to the employees under section 25FF of the Industrial Disputes Act arising on a transfer of ownership. The question arose whether the sum the firm and the Supreme Court pointed out that the present value of commercial evaluation of money to become due in future, under a definite obligation, will be a permissible outgoing or deduction in computing the taxable profits of a trader, even if in certain conditions the obligation may cases to exist because of forfeiture of the right, but where, however, the obligation of the trader is purely contingent, no question of estimating the present value may arise, for, to be a permissible outgoing or allowance, there must, in the year of account, be a present obligation amount taken into account as retrenchment compensation can be regarded as wholly for business, the court ruled that where the liability is, during the whole of the period when the business is carried on, wholly contingent and does not raise any obligation during the time when the business is carried on, it cannot fall within the expression "expenditure laid out or expended wholly and exclusively for the purpose of the business". It has also been reiterated that in order to be permissible allowance under section 10(2) (xv) of the Indian Income-tax Act, 1922, the expenditure must be for the purpose of carrying on the business. It has also been reiterated that in order to be permissible allowance under section 10(2) (xv) of the Indian Income-tax Act, 1922, the expenditure must be for the purpose of carrying on the business. We have earlier painted out that in this case, the liability to pay retrenchment compensation arose only out of the decision taken to close down the business of the company and not to keep alive its business activities and the expenditure cannot, therefore, be regards one incurred for the purpose of business and we are of the view that the principle referred dared with reference to section 25FF and not section 25FFF of the Industrial Disputes Act. In Venkatesa Colour Works v. CIT , the assessee-firm decided to close down its factory and had entered into an agreement with the workers, under which compensation was payable to the workmen. Though the factory was originally intended to be closed from April 10, 1967, it was actually closed only on July 15, 1967, and the payment to the workers in accordance with the agreement was made thereafter and the assessee claimed deduction of the payments so made in its assessment, which was rejected by the departmental authorities as well as the Tribunal. On a reference under section 256(1) of the Act, the Division Bench pointed out that the closure of the business and the accrual or arising of the liability to pay compensation are concurrent and one cannot be separated from the other and, therefore, the compensation payable under section 25FFF of the Industrial Disputes Act cannot be said to be an expenditure incurred by the assessee for carrying on the business or an expenditure laid out wholly and, therefore, the compensation payable under section 25FFF of the Industrial Disputes Act cannot be said to be an expenditure incurred by the assessee for carrying on the business and the expenditure cannot, therefore, be said to be exclusively or wholly laid out for the purpose of the business or an expenditure incurred for the purpose of carrying on the business. While holding so, reference was made to CIT v. Gemini Cashew Sales Corporation . While holding so, reference was made to CIT v. Gemini Cashew Sales Corporation . After extracting the passage at page 650, the Division Bench proceeded to observe that "if the word 'closure' is substituted for the word 'transfer', namely, 'a deduction which is proper and necessary for ascertaining the balance of profits and gains of the business is undoubtedly properly allowable, but where a liability to make a payment arises not in the course of the business, not for the purpose of carrying on the business, but springs from the closure of the business, it is not, in our judgment, a properly debatable item in its profit and loss account as revenue outgoing'", the decision of the Supreme Court would govern that case also and a fortiori to a case of closure of business, the principle of the decision of the Supreme Court would apply. We are of the view that the decision in Venkatesa Colour Works v. CIT would squarely govern this case as well. We, therefore, answer the question referred to us in the affirmative and against the assessee. The Revenue will be entitled to the costs of this reference. Counsel's fee Rs. 500.