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Commissioner of Income-tax Vs. Shyam Nagar TIn Factory (P.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 208 of 1977
Judge
Reported in(1984)41CTR(Cal)58,[1984]150ITR617(Cal)
ActsIncome Tax Act, 1961 - Section 37(1); ;West Bengal Employees' Payment of Compulsory Gratuity Act, 1971
AppellantCommissioner of Income-tax
RespondentShyam Nagar TIn Factory (P.) Ltd.
Appellant AdvocateA.C. Moitra and ;A.N. Bhattacharya, Advs.
Respondent AdvocateR. Murarka and ;J.C. Saha, Advs.
Excerpt:
- .....as on july 31, 1971, was rs. 77,246. the assessee claimed this amount as a deduction in the year in question. the ito repelled the claim. the ito held that the papers do not show the actual amount of liability for the period august 1, 1970, to july 31, 1971. according to him, except the liability for that period, the amount of rs. 77,246 referred to earlier years. the assessee had neither made any actual payment nor had made any provision for it in its books of account.2. being aggrieved, the assessee went up in appeal. the aac held that the gratuity was a contingent liability and, hence, not allowable as a deduction in respect of the earlier years. the matter was taken up to the tribunal. the tribunal upheld the claim of the assessee basing on the decision of this court in cit v......
Judgment:

Satish Chandra, C.J.

1. This reference relates to the assessment year 1972-73, the accounting period ended on July 31, 1971. The West Bengal Employees Payment of Compulsory Gratuity Act, 1971, came into force on June 14, 1971, which created liability on the employer to pay gratuity to its employees. The assessee filed actuarial valuation by Mr. P.K. Ghose, Fellow of the Institute of Actuaries, showing that discounted value of gratuity as on July 31, 1971, was Rs. 77,246. The assessee claimed this amount as a deduction in the year in question. The ITO repelled the claim. The ITO held that the papers do not show the actual amount of liability for the period August 1, 1970, to July 31, 1971. According to him, except the liability for that period, the amount of Rs. 77,246 referred to earlier years. The assessee had neither made any actual payment nor had made any provision for it in its books of account.

2. Being aggrieved, the assessee went up in appeal. The AAC held that the gratuity was a contingent liability and, hence, not allowable as a deduction in respect of the earlier years. The matter was taken up to the Tribunal. The Tribunal upheld the claim of the assessee basing on the decision of this court in CIT v. Eastern Spinning Mills Ltd. : [1980]126ITR686(Cal) , following its earlier decision (sic) in the matter of Budge Budge Amalgamated Jute Mills Ltd. v. ITO (decided on February 27, 1976 in Civil Rule No. 4552(W) of 1976). The claim was held to be allowable.

3. At the instance of the Revenue, the Tribunal has referred the following question for the opinion of this court:

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in allowing a deduction of Rs. 77,246 under Sub-section (1) of Section 37 of the I.T. Act, 1961, on account of liability towards payment of gratuity to the employees in the assessment for the assessment year 1972-73 ?'

4. In our opinion, the question is squarely covered by the decision of this court in the case of CIT v. Eastern Spinning Mills Lid, : [1980]126ITR686(Cal) and, hence, the claim is allowable.

5. On behalf of the Department, it was urged that since no provision was made for the liability in the year in question, the same is not allowable. In Kedarnath Jute Mfg. Co. Ltd. v. CIT : [1971]82ITR363(SC) , it was held that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of its rights: nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. It is not denied that the liability under the West Bengal Employees' Payment of Compulsory Gratuity Act, 1971, was a statutory liability and did not depend upon the circumstance that a particular employer makes provision therefor in its books of account. Moreover, the Act came into force for the first time in the accounting period relevant to the assessment year in question. Hence, the claim for deduction could not be denied on this score.

6. We, therefore, answer the question referred to us in the affirmative, in favour of the assessee and against the Department. There will, however, be no order as to costs.

Suhas Chandra Sen, J.

7. I agree.


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