C.S.P. Singh, J.
1. The Income-tax Appellate Tribunal, Delhi Bench, has referred the following question for the opinion of this court :
' Whether, on the facts and in the circumstances of ,the case, the assessee is entitled to the deduction of Rs. 8,02,402 or any other sum as a deduction in the computation of its business income on the ground that a liability had accrued on the part of the assessee to provide for the payment of gratuity to its employees under the Sugar Industry Workmen Gratuity Scheme '
2. The assessment year involved in the present reference is 1962-63, for which the previous year ended on 30th September, 1961. In the relevant period, the company owned two sugar mills, one at Pilibhit and the other at Kashipur. It claimed deduction of a sum of Rs. 25,000 in the Kashipur unit, and a sum of Rs. 45,000 for the Pilibhit unit under the head ' Gratuity '. The ITO, on the view that the amounts claimed were unascertained liabilities, allowed an amount of only Rs. 8,550 which has been actually paid, and disallowed the balance. An appeal was preferred before the AAC. In the appeal, the assessee enlarged its claim to Rs. 8,02,402. The reason for the enlargement of the claim was that the Government of India had appointed a Central Wage Board for the sugar industry in December, 1957, for the purpose of working out a wage structure and the principles governing the grant of bonus/gratuity. The report of the Board was accepted by the Government of India, and the State Governments were advised to take various steps to enforce the recommendation. The State Government accepted the recommendation after considering it at a tripartite conference, which included the representatives of the sugar mills and workers. Thereafter, a notification under Section 3 of the U. P. Industrial Disputes Act, 1947, was issued for giving effect to the recommendations of the Wage Board. The recommendations included a scheme of gratuity, the terms of which were set out in Appendix V to the notification. The scheme was to come into force with effect from November 1, 1960. The assessee calculated its liability for gratuity on the basis of this scheme, and made a claim for Rs. 4,25,520 and Rs. 3,06,000 for the earlier years relating to Pilibhit and Kashipur factories, respectively, and an amount of Rs. 50,995 and Rs. 29,750 as gratuity for the relevant year. As some amount of gratuity had already been allowed by the ITO, the claim in appeal was put at Rs. 8,02,402. While arriving at this figure the assessee had taken into account the number of permanent and seasonal workmen working in the two units, and multiplied the average length of service by 20 half-month's pay in the case of permanent workmen, and 10 quarterly month's basic pay in the case of seasonal workmen. This claim was rejected by the AAC on the ground that the claim for gratuity for the earlier years must be taken to have arisen in those years under the mercantile system of accounting, and could not be allowed in the relevant year, and, secondly, that no such claim has been made before the ITO, and a new claim could not be set up in appeal. As respects gratuity for the previous year the AAC took the view that it was only a. contingent liability, and as such the entire claim for the gratuity of the previous year as calculated by the assessee was rejected. The appeal was dismissed. The assessee then appealed to the Tribunal. Before the Tribunal it was claimed that the entire amount should be allowed as a liability, for it was created in the year of account by virtue of a notification, and further that the amount could be calculated on the actual value for which the assessee had already taken steps. The Tribunal held that the liability of the assessee could not be allowed on the actuarial value as the actuarial value had not been placed before it by the assessee. It then considered the gratuity scheme, and found that different criteria had been applied for fixing the quantum of gratuity to be paid in the event of death, voluntary retirement, resignation or on termination of service of the employees, and, as such, as the matter stood, it was not possible to indicate as to when those eventualities could arise. It then went on to criticise the method by which the assessee had calculated the amount at Rs. 8,02,402 and found that the calculation had been made on the basis of salary as payable and paid to each employee during the particular year of account. This method had not taken into account the possibility of the death of workmen or his dismissal for misconduct. The method of calculation was found defective also on the score that it did not take into account the salary which an employee may earn at the time when the gratuity would become payable to him. On considering all these factors it found the method adopted by the assessee for calculation of the gratuity to be defective and disallowed the claim on this ground, and also on the view that the liability for gratuity was at best a contingent liability and could not be allowed.
3. On the reference coming up before this court on the 16th March, 1968, counsel for the assessee made a statement that the actuarial valuation of the gratuity had been obtained by the assessee, and on this, the court directed the Tribunal to submit a statement of the case, and to annex with it the report of the actuarial valuation supplied by the assessee. The Tribunal in response to this order has now submitted the supplementary statement of the case. In the supplementary statement of the case the Tribunal has stated that according to the actuarial report filed by the assessee, liability for payment of gratuity stood at Rs. 7,59,423 for the relevant accounting year ending on 30th September, 1961.
4. Sri Ravi Gulati, appearing on behalf of the department, has raised a preliminary objection to the consideration of the report. He contended that the jurisdiction of this court in calling for further statement of the case is of a limited extent. It has been urged that while calling for a further statement of the case the court cannot direct the. Tribunal to submit a statement after taking into account fresh evidence. It was urged that the earlier order dated 16th March, 1968, calling for a further statement of the case directing the Tribunal to annex with it the report of the actuarial valuation was erroneous, and as such it should be ignored while disposing of the reference finally.
5. The ambit of the High Court's jurisdiction in calling for a further statement of the case has been considered by the Supreme Court on a number of occasions and it is necessary to refer to them. In Keshav Mills Co. Ltd. v. CIT : 56ITR365(SC) , the Supreme Court, after a review of a large number of its earlier decisions, has held that the power of the High Court while calling for a supplementary statement- of the case is limited, and can be exercised only to the extent of requiring the Tribunal to add or alter the statement of the case in the light of the material and evidence already on the record. It did not confer jurisdiction on the High Court to direct the Tribunal to collect additional material or evidence not on the record. Similar is the view expressed in the case of CIT v. Sahu Jain Ltd. : 103ITR135(SC) . In view of these pronouncements of the Supreme Court it must be held that the order directing the Tribunal to submit a further statement of the case after taking into account the actuarial report submitted by the assessee later, was not justified, inasmuch as the actuarial valuation had not been filed before the Tribunal when the appeal was disposed of.
6. Counsel for the assessee has, however, urged that the order passed under Section 66(4) has become final, and as such it cannot be reconsidered at this stage now. To begin with he has drawn our attention to the decision of the Bombay High Court in the case of CIT v. Keshav Mills Co. Ltd. : 44ITR647(Bom) . In that case although the Bench held that its earlier order calling for a further statement of the case, as a result of which some additional evidence would have to be brought on the record by the Tribunal was incorrect, they were not inclined to go behind that order as in their view that would amount to sitting in appeal over the earlier order was passed under Section 66(4). Reference was also made to another Bombay decision in the case of Petlad Turkey Red Dye Works Co. Ltd. v. CIT : 45ITR275(Bom) in which the same view has been taken. The Bombay decision in CIT v. Keshav Mills Co. Ltd. : 44ITR647(Bom) has been reversed by the Supreme Court on appeal in Keshav Mills Co. Ltd. v. CIT : 56ITR365(SC) and the case on appeal has already been noticed earlier. The other Bombay decision was also reversed by the Supreme Court on appeal in Petlad Turkey Red Dye Works Co. Ltd. v. CIT : 48ITR92(SC) , wherein it was held that the High Court had no jurisdiction to direct additional evidence to be taken while calling for supplementary statement of the case. Thus, these decisions in so far as they lay flown that once an order has been passed under Section 66(4) rightly or wrongly it cannot be reconsidered at the time when the reference comes up for hearing, cannot be taken to lay down the correct law, for an order that has been passed without jurisdiction, and due to an error on the part of the court, can always be reconsidered by it in the exercise of inherent power when the matter comes up for final disposal. The question appears to be settled by the decision of the Supreme Court in the case of CIT v. Smt. Anusuya Devi : 68ITR750(SC) . In that case, the High Court had called for certain questions of law, and directed the Tribunal to state a certain question of law which in its view at that stage arose out of the order of the Tribunal. The question arose whether the High Court could decline to answer the question referred in case the questions did not arise out of the order of the Tribunal. It was held that the power of the High Court to decline to answer such questions was not curtailed merely because it had by an earlier erroneous order called for a reference of such questions. This proposition was reaffirmed in a later decision of the Supreme Court in the case of Lakshmiratan Cotton Mills Co. Ltd. v. CIT : 73ITR634(SC) in which it was held that the power of the High Court to call for a statement of the case on questions of law does not extend to calling for questions which are not incorporated in the application either under Section 66(1) or Section 66(2). Further, that the power under Section 66(4) cannot be exercised for raising any additional questions or calling for a statement of the case on questions not referred by the Tribunal. It was also held that the correctness of an order of the High Court calling for a statement of the case can be challenged at the hearing of the reference, and it. can decline to answer the questions referred pursuant to the direction of the High Court, if it did not arise out of the order of the Tribunal or were questions of fact. We see no difference in principle between an order passed under Sections 66(2) and 66(4), for if an erroneous order passed under s, 66(2) can be re-examined at the time of final hearing, an order under Section 66(4) does not stand on a higher pedestal, for, it is an order which is passed subsequent to a reference being made under Section 66(1) or 66(2), if the primary order, viz., those passed under Section 66(1) and (2), can be looked into for the purposes of seeing as to whether they fell within the purview of Section 66, the supplementary order under Section 66(4) can likewise, be scrutinised. We, therefore, accept the contention on behalf of the department that the order of 16th March, 1968, does not bind us. In this view of the matter, it is not possible to consider the actuarial report submitted by the Tribunal with the further statement of the case.
7. Coming now to the merits of the controversy. It has been seen that the assessee had claimed an amount of Rs. 25,000 for the Kashipur unit and Rs. 45,000 for the Pilibhit unit under the head 'gratuity' before the ITO The ITO had allowed an amount of Rs. 8,850 only, being the amount actually paid. Before the AAC the claim was enlarged to Rs. 8,02,402. This amount, according to the assessee, represented the liability incurred by it for the previous years, in view of a notification issued under Section 3 of the U. P. Industrial Disputes Act, 1947, giving effect to the recommendation of the Central Wage Board for the sugar industry regarding payment of gratuity. It also included ah amount of Rs. 50,995 and Rs. 29,750 for the relevant previous year relating to its Pilibhit and Kashipur factories. The amount was worked out by the assessee by taking into account the number of permanent and seasonal workmen working in the two units and multiplying the average length of service by 20 half-month's pay in the case of permanent workmen and 10 quarterly-month's basic pay in the case of seasonal workmen. The AAC disallowed the claim, inter alia, on the ground that the liability for the earlier years could not be claimed in the relevant previous year as it did not relate to that year, and, secondly, that a claim for this enhanced amount could not be set up in appeal, as no such claim had been made before the ITO. Apart from these reasons, he disallowed the claim for the previous years on the ground that it created only a contingent liability. The Tribunal disallowed the claim for gratuity on the view that the method by which the liability for gratuity had been worked out was defective, and also on the view that the liability for gratuity was a contingent liability.
8. The view of the Tribunal that the liability for payment of gratuity was a contingent liability, and as such could not be allowed as a deduction cannot be upheld in view of the decision of the Supreme Court in the case of Metal Box Company of India Ltd. v. Their Workmen : (1969)ILLJ785SC . In that case, it was laid down that even in cases where liabilities are contingent they can be allowed as a business expense, if they are sufficiently certain and capable of valuation, and are claimed at a discounted value, in accordance with accepted method of accountancy as prevailing in commercial circles. In that case, the claim for gratuity made on the actuarial basis was held to be an allowable deduction for computing the profits of the company for purposes of payment of bonus. In the present case, the claim for gratuity is for the estimated liability in respect of gratuity for years previous to the relevant previous years and for the previous year in question. So far as liability for gratuity for the years previous to the relevant previous year is concerned, that was created in the relevant previous year on account of the enforcement of the recommendations of the Wage Board by an order passed under Section 3 of the U. P. Industrial Disputes Act. The liability for payment of gratuity for the - relevant previous year was also created by this very order. As the liability for payment of the gratuity for the earlier previous years was created in the relevant previous year, and not at any point of time earlier, the fact that they related to a previous year antecedent to the relevant previous year, is not sufficient to defeat the assessee's claim. For, the liability in question was created in the relevant previous year and not at any point of time earlier. So far as the liability for payment of gratuity for the relevant previous year is concerned, provision for that could be made in the relevant previous year, for it related to the year in question. Thus, we are unable to agree with the view of the Tribunal that the claim of the assessee for the payment of gratuity would fail on the ground that it was a contingent liability.
9. The next question is as to whether the assessee was entitled to deduction of Rs. 8,02,402 or any other sum as gratuity in the computation of its business income. Since the assessee was claiming the deduction, it stands to reason that the burden of proof that the deduction claimed by it was the correct amount in accordance with the I.T. Act was on the assessee. The assessee had not estimated its liability for gratuity on the actuarial basis, which appears to be one of the approved methods of valuing claims of this nature. It had calculated its liability on a basis which the Tribunal found did not give the correct liability of the assessee for gratuity. Counsel for the assessee was not able to satisfy us that the method adopted by the, assessee for calculating its future liability for payment of gratuity was a method accepted in trading circles and in accordance with settled principles of commercial accountancy. Thus, the claim for Rs. 8,02,402 based on the calculations made by the assessee by following a method which has not been recognised in commercial circles could not be allowed. Counsel for the assessee, however, urged that as the assessee was maintaining its account, on the mercantile basis, it was entitled to deduction of some amount towards gratuity for this future liability, and in the circumstances the Tribunal should have calculated the assessee's future liability for payment of gratuity in accordance with some recognised principle for calculating such liabilities, and erred in rejecting the assessee's claim solely on the basis that the method by which the assessee had worked out its liability was not a scientific method. In this connection, our attention was drawn to a decision of this court in the case of Ascharajlal Ram Parkash v. CIT : 90ITR477(All) , where it was held that the mere fact that an assessee in his return had not claimed depreciation for a truck purchased in a previous year nor had given necessary particulars in the form of return did not absolve the ITO from granting deduction for depreciation in case the ITO, in the course of the assessment proceedings, comes to know of the relevant particulars necessary for the grant of the deduction. The case was decided on the principle that the ITO had to compute the true profits and gains of the business of an assessee, and when he is aware of the relevant facts and particulars for the grant of a deduction allowable under the Act, he should do so notwithstanding default on the part of the assessee to claim the deduction in his return, and his failure to give particulars of it in that return. Counsel also referred to certain other cases which lay down the course to be adopted by High Courts on a reference, where the Tribunal omits to consider relevant questions which are necessary for decision of an appeal or fails to give a clear finding in appeal. But we feel that no useful purpose would be served by referring to those cases as the Tribunal in the present case has neither omitted to consider relevant facts in the case nor has it omitted to consider the controversies raised between the parties. Counsel on behalf of the revenue, however, contended that inasmuch as the assessee had made a claim before the ITO for deduction of only an amount of Rs. 70,000 odd for. gratuity, the assessee was not entitled to enlarge his claim for gratuity before the AAC or the Tribunal. It was also urged that inasmuch as the assessee stated his claim to gratuity on the method of calculation adopted by it for working out the amount claimed, it was not incumbent on the Tribunal to have calculated the gratuity allowable to the assessee by recourse to the recognized method for doing so.
10. It is undoubtedly true that the ITO has to compute the true profits or income of an assessee in order to bring it to tax. But it must be remembered that it was the assessee who was claiming a deduction, and the onus was on him to bring all material facts on record so that the deduction claimed could be allowed. It has been seen that the liability for gratuity can be allowed as a deduction on a discounted value, and not with reference alone to the number of workmen employed by a concern and their length of service: See Metal Box Company of India Ltd. v. Their Workmen : (1969)ILLJ785SC . Thus, the assessee had to bring on record all material necessary for working out the discounted value of its liability for gratuity. In the present case, it appears that the assessee contented itself by establishing that it became liable for payment of gratuity on the basis of the statutory order passed under Section 3 of the U.P. Industrial Disputes Act, which gave effect to the Wage Board award, and the strength of its workmen and their length of service. It gave out that it would be filing the actuarial value of this liability, but failed to do so by the time the appeal before the Tribunal was finally heard and disposed of. Now, the I.T. Act does not give any formula for working out the disputed value of such a liability. Neither has our attention been drawn to any settled principle of law on the basis of which this discounted value can be calculated by a mere look at the strength of the employees employed by the concern and their length of service. The strength of the workmen employed in a concern and their length of service are relevant factors for calculating the discounted value of the liability for gratuity, but these by themselves cannot provide the sole basis for working out this liability. Further facts had got to be taken into account for calculating the liability either on the actuarial basis or some other basis which is accepted in commercial accountancy for calculating such liability. The assessee should have made this material available to the Tribunal before it could urge that the Tribunal should have deducted the liability for gratuity. We are assuming for the purposes of this case that the AAC and the Tribunal were bound to make such a calculation in case the relevant material was on the record, notwithstanding the fact that the claim in the enhanced amount was made before the AAC for the first time. We are of the view that it is not the function of the Tribunal to assist an assessee who has not placed on the record relevant facts, by launching a fact-finding inquiry on its own. For, it is no part of the Tribunal's function to act as an investigative agency either for the assessee or the department in cases where ample particulars have not been given by parties. This being so, the Tribunal was right in rejecting the assessee's claim. A case of a similar nature came up before the Bombay High Court in the case of Official Liquidator of the Sakeeria Cotton Mills Ltd. (In liquidation) v. CIT : 81ITR528(Bom) , where it was held that where the assessee had staked his claim for gratuity based on a particular method, his case for the deduction had to stand or fall by the method disclosed by him. In that case too the assessee had not disclosed relevant material for calculation of the gratuity on any other method. The decision of this court in Ascharajlal Ram Parkash : 90ITR477(All) is clearly distinguishable. In that case the year in which the truck was purchased was known as also its purchase price. The purchase price of the truck and the year of the purchase being known, the amount of deduction could easily be calculated by reference to the provisions of the I.T. Act itself. Such is not the case here, as has been seen, for, before the deduction could be allowed, a number of other facts had to be brought to the notice of the authorities for allowability of the deduction.
11. We, accordingly, answer the question in the negative, in favour of the department and against the assessee. The department is entitled to its costs, which is assessed at Rs. 200. Counsel's fee is assessed at the same figure.