1. The appeal is by the assessee. The assessee retired from I.T.C. Ltd. At the time of retirement he was entitled to receive a gratuity of Rs. 53,560. Rs. 30,000 were paid immediately after retirement and the balance was paid in two annual instalments of Rs. 11,780 each. The ITO held that the entire gratuity of Rs. 53,560 accrued to the assessee at the time of retirement and after allowing exemption of Rs. 30,000 added the balance in the income assessable for the assessment year 1980-81.
The AAC concurred with him. The assessee is in appeal.
2. The learned representative of the assessee submitted that according to the terms of the contract, the assessee was entitled to only a sum of Rs. 30,000 at the time of retirement. The balance was payable in two instalments payable annually. Since, according to the Gratuity Fund Rules of the company, only Rs. 30,000 accrued at the time of retirement, the balance was not assessable on retirement but would become taxable only on the dates on which it became actually payable.
He, accordingly, pleaded that the order of the AAC should be reversed.
The learned departmental representative argued that the entire gratuity in one lump sum became due to the assessee after retirement and the postponement of part of the gratuity to a later date or dates will not affect the accrual of income to the assessee.
3. We have gone through the Gratuity Fund Rules. It is seen that the gratuity has to be calculated at the rate of one-half of a month's average salary for each completed year of continuous service, subject to a maximum of twenty months' average salary. This amount is designated as the maximum survival gratuity (rule 7 of the Gratuity Fund Rules). According to Rule 8 of the Gratuity Fund Rules the maximum survival gratuity calculated in accordance with Rule 7(b) or Rs. 30,000, whichever is lower, would accrue and become payable to the member immediately on cessation of the employment with the company.
According to Rule 9 of the Gratuity Fund Rules, half of the balance of the maximum survival gratuity, if any, after payment of the amount due in accordance with Rule 8, will accrue and become due and will be payable by the trustees 13 months after the cessation of the employment of the member. The balance will likewise accrue and become due and payable 26 months after the cessation of the employment. Further, the right to receive the instalments mentioned in rules 9 and 10 of the Gratuity Fund Rules will accrue to the assessee only if the member is alive on that date and is not working in any other firm competing with the former employer. If he dies within the period the amount will become due to his wife, etc. It is thus clear from the above rules that the balance of the maximum survival gratuity in excess of Rs. 30,000 will not accrue or become due to the employee immediately on cessation of his employment with the company. We have, therefore, to hold that the authorities below were in error in including Rs. 23,560 in the income of the assessee. The addition is deleted. The order of the AAC is reversed.