Govindan Nair, C.J.
1. Though this matter has been numbered as an income-tax referred case, it is only the supplementary statement of the case in Income-tax Referred Case No. 25 of 1968. In disposing of Income-tax Referred Case No. 25 of 1968, we directed in our judgment which is in Seshasayee Bros. v. Commissioner of Income-tax, that the Income-tax Appellate Tribunal will draw up and submit to this court a fuller statement of the case incorporating its findings on the following points :
(i) Was there any existing liability incurred by the company during the accounting period or whether what had been done by the assessee was only to make a provision for a contingent or future liability ?
(ii) Was the deduction claimed by the assessee in respect of any item of expenditure during the relevant accounting period
2. The question referred to this court for the year of assessment 1963-64 was this:
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in allowing the amount of Rs. 11,400 being the gratuity to Shri K. A. Varugis for the assessment year 1963-64 ?.'
3. In the supplementary statement of the case dated August 31, 1971, drawn up by the Income-tax Appellate Tribunal, Cochin Bench, the following findings had been entered.
(1) that there was no existing liability incurred by the assessee-company during the material previous year and what had been done by it was only to make a provision for a contingent or future liability ; and
(2) consequently, the deduction claimed by the assessee was not in respect of any item of expenditure incurred during the relevant accounting period.
4. In the light of what we stated in our judgment in Seshasayee Bros, v. Commissioner of Income-tax, : 82ITR442(Ker) in calling for the additional statement and in the light of the findings entered by the Tribunal, the question referred to us for our opinion, which we have extracted above, can be answered only in the negative, that is, in favour of the department and against the assessee.
5. Counsel on behalf of the assessee, however, contended that the Tribunal's findings are unsustainable in that the evidence considered by the Tribunal has been misread and misunderstood and, what was more, the evidence furnished before the Tribunal had not even been adverted to. It was contended by the counsel that the balance-sheet and profit and loss.account for the year ended December 31, 1962, had been produced before the Tribunal and that the sum of Rs. 1,08,222 under the heading.'Directors' Remuneration' took in also the sum of Rs. 11,400, the gratuity paid to Shri K, A. Vurguis, and that this was evident from schedule I to the profit and loss account as well as the schedule to the balance-sheet and that these documents had been produced before the Tribunal and the evidence furnished by these documents had not been adverted to in entering the findings on the two points which we had extracted earlier in the judgment. Counsel urged that the general authority of directors extended to all acts which were necessary for management and they had, therefore, authority in a prosperous year to give the company's servants gratuity from its profits and that this principle is well accepted and will apply to the decision of the directors to grant gratuity to the retiring director ; so it was contended that when the directors took the decision on or before December 31, 1962, to pay Shri K. A. Varguis, the sum of Rs. 11,400 as gratuity, it must be taken that that liability had been incurred in the relevant accounting year, for the assessment year 1963-64. The relevant accounting year ended on December 31, 1962. Reliance was placed on Buckley on the Companies Acts (page 970, 13th edition) for the proposition that the profit and loss account is the appropriate place to show the payment of pension and other emoluments. Our attention was also drawn to Section 215(3) of the Companies Act which enjoins that the- balance-sheet and profit and loss account must be approved by the board of directors before it was authenticated under Clause (1) of the section and was signed on behalf of the board. This, according to counsel for the assessec, implied that any amount included in the balance-sheet and profit and loss account as an item of expenditure will have to be approved by the board before it was included as such. It was further pointed out that the directors have got all the powers except those which are expressly stated to be exercisable by the company in general meeting. So, by the inclusion of this amount in the profit and loss account and the balance-sheet as on December 31, 1962, it is clear that the company had accepted the liability for payment of gratuity to Shri K. A. Varguis during the relevant accounting period itself. If these matters had been taken into account, it is submitted that the findings on the points would have been in favour of the assessee. This not having been taken into account, it is further urged that the findings cannot stand and we have, therefore, been asked to follow the procedure which the Supreme Court did in the decisions in Commissioner of Income-tax v. Greaves Cotton & Co. Ltd., : 68ITR200(SC) . and Commissioner of Income-tax v. Indian Molasses Co. P. Ltd., : 78ITR474(SC) . , In Commissioner of Income-tax v. Greaves Cotton & Co. Lid., the Supreme Court said:
'We have therefore reached the conclusion that the question of law referred to the High Court cannot be answered in view of the defective finding by the Appellate Tribunal which is recorded without consideration of all the evidence. It will be open to the Appellate Tribunal to rehear the appeal under Section 66(5) of the Act and record a clear finding after hearing the parties and after considering all the relevant material in the case as to whether the amount of Rs. 18 lakhs paid by the respondent-company to the managing agents on the termination of the managing agency agreement was an admissible deduction under Section 10(2)(xv) of the Income-tax Act. After recording a clear finding on the question, the Appellate Tribunal will finally dispose of the appeal.'
6. And in Commissioner of Income-tax v. Indian Molasses Co. P. Ltd., there is the following passage :
'Two courses are now open to us: to call for a supplementary statement of the case from the Tribunal; or to decline to answer the question raised by the Tribunal and to leave the Tribunal to take appropriate steps to adjust its decision under Section 66(5) in the light of the answer of this court. If we direct the Tribunal to submit a supplementary statement of the case, the Tribunal will, according to the decisions of this court in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax, : 37ITR11(SC) , Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax, : 48ITR92(SC) . and Keshav Mills Co. Ltd. v. Commissioner of Income-tax, : 56ITR365(SC) ., be restricted to the evidence on the record and may not be entitled to take additional evidence. That may result in injustice. In the circumstances, we think it appropriate to decline to answer the question on the ground that the Tribunal has failed to consider and decide the question whether the expenditure was laid out or expended wholly and exclusively for the purpose of the business of the company and has not considered all appropriate provisions of the statute applicable thereto. It will be open to the Tribunal to dispose of the appeal under Section 66(5) of the Indian Income-tax Act, 1922, in the light of the observations made by this court after determining the questions which ought to have been decided.'
7. There is no reference whatever in the long supplementary statement of the case dated August 31, 1971, to the profit and loss account or the balance-sheet of the company which was produced before the Tribunal. This should have been referred to and considered. The documents furnished very relevant material for entering findings on the points and the schedules to the profit and loss account and the balance-sheet have to be read with the entries in the profit and loss account and the balance-sheet. Further, the entries in the relevant account books have to be.'understoodin the light of the provisions of the profit and loss account and balance-sheet read with schedules. The implications of the entries in the profit and loss account and balance-sheet read with schedules have to be understood in the light of the powers of the directors and the provisions of the Companies Act. Counsel for the assessee has stated before us that these documents have been made available to the Tribunal. In any view we think that an advertance to these documents and the provisions of the Companies Act and the implications of showing an item as liability in the profit and loss account and balance-sheet have to be adverted to before entering a finding on these points.
8. In the light of the above, we decline to answer the question in view of the defective finding of the Tribunal which has been recorded without advertence to relevant materials. The Tribunal will dispose of the appeal before it after rehearing it under Section 260(1) of the Income-tax Act, 1961, in the light of the observations in this judgment. There will be no order as to costs.