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Kalasa Tea and Produce Co. Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1982)1ITD785(Mad.)
AppellantKalasa Tea and Produce Co. Ltd.
Respondentincome-tax Officer
Excerpt:
.....: 2. provision for gratuity-disallowance of rs. 18,599 - the assessee-company has an approved gratuity fund. the balance in the fund account as on 31-3-1978 is rs. 3,34,842 whereas the liability for payment of gratuity as on 31-3-1978 as per actuarial valuation works out to rs. 26,202. the ito held that as against this there is already an excess of rs. 18,599 available in the fund account as on 31-3-1978 and that, therefore, only a sum of rs. 7,603 can be allowed as deduction in respect of incremental liability for the year ended 31-3-1978. as against this the assessee had debited a sum of rs. 26,202 to the profit and loss account and has claimed the same as a deduction.therefore, the excess of rs. 18,599 claimed was disallowed. the commissioner (appeals) upheld it. hence, this.....
Judgment:
1. The appeal of the assessee relates to the assessment year 1978-79.

The accounting year is the year ended 31-3-1978. The two points that arise are dealt with as follows : 2. Provision for gratuity-Disallowance of Rs. 18,599 - The assessee-company has an approved gratuity fund. The balance in the fund account as on 31-3-1978 is Rs. 3,34,842 whereas the liability for payment of gratuity as on 31-3-1978 as per actuarial valuation works out to Rs. 26,202. The ITO held that as against this there is already an excess of Rs. 18,599 available in the fund account as on 31-3-1978 and that, therefore, only a sum of Rs. 7,603 can be allowed as deduction in respect of incremental liability for the year ended 31-3-1978. As against this the assessee had debited a sum of Rs. 26,202 to the profit and loss account and has claimed the same as a deduction.

Therefore, the excess of Rs. 18,599 claimed was disallowed. The Commissioner (Appeals) upheld it. Hence, this appeal.

3. What we think is that all possible irrelevant materials had crept into the confused reasoning adopted by the income-tax authorities.

After the enactment of Section 40A(7) of the Income-tax Act, 1961 these concepts of incremental liability for all the assessment years commencing from 1-4-1973 onwards and actuarial valuation for the assessment years commencing from 1-4-1976 onwards have become irrelevant. Those considerations have ceased to be of any significance.

After the enactment of Section 40A(7), if any provision for gratuity is allowed as a deduction it is not because of any contractual or statutory liability on the part of the assessee, but only because of a payment made into the fund either in the relevant accounting year or at a time soon after the expiry of the accounting year. These concepts of incremental liability and actuarial valuation were relevant only at a time before the enactment of Section 40A(7) when deductions were allowed en the basis of liability alone without any payment into any fund. Now, Section 40A(7) clearly enacts that no deduction shall be allowed in respect of any provision, whether called as such or by any other name, made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. Of course, there is some saving clauses. So only if the provision comes under a saving clause, it will be allowed as a deduction. It is to be noted that Section 40A(7)(b)(i) saves a provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund or for the purpose of payment of any gratuity that has become payable during the previous year. The provision in dispute before us, is certainly not a provision for the purpose of payment of any gratuity that has become payable during the previous year. So the only question for consideration is whether it is a provision made by the assessee for the purposes of payment of a sum by way of only contribution towards any approved gratuity fund. If it is such a provision, it is saved from disallowance. If it is saved from disallowance, it ieans that it can be allowed as a deduction. So no other consideration prevails or should prevail. The assessee says that the sum of Rs. 26,202 or Rs. 37,891 made up of Rs. 26,202 plus Rs. 11,689, distributed as gratuity, has been paid into the approved gratuity fund soon after the expiry of the accounting year. If it has been so paid into the gratuity fund, it is certainly a provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund and has, therefore, got to be allowed as a deduction. If such payments are not made within a reasonable period, it may cease to be such a provision. Therefore, this question has to be verified in the light of the payments of these amounts into the fund and the exact dates of payments. So the Commissioner (Appeals) will verify these dates of payments and the amounts of payments and decide the question whether this provision of Rs. 26,202 is a provision made by the assessee for the purpose of payment of a sum by way of any contribution towards any approved gratuity fund. If it is such a provision, it will be allowed as a deduction. Otherwise, it will not be allowed as a deduction. The impugned appellate order is set aside to that extent and is restored to the Commissioner (Appeals) for decision afresh in the light of these findings.

5. Appeal allowed in part. Appeal to the extent it relates to ground 1 (Gratuity) is restored to the Commissioner (Appeals) for decision afresh.


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