TMI Blog1970 (3) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... sis mentioned in the award, viz. :- " Every employee should be entitled to gratuity at the rate of one month's salary current at the time of retirement, discharge or resignation from service ... I therefore, direct that gratuity should be paid to all employees covered by this reference on the scale laid down below : (1) On the death of an employee while in the service of the company (mill)-one month's salary for each year of service subject to a maximum of 15 months' salary to be paid to his heirs or executors or nominees. (2) On voluntary retirement or resignation of an employee-after 15 years' continuous service in the company-15 months' salary. (3) On termination of his service by the company- (a) after 10 years' continuous service in the company but less than 15 years' of service in the company-3/4 of one month's salary; (b) after 15 years' continuous service in the company-15 months' salary. (4) A gratuity will not be paid to any employee who is dismissed for dishonesty or misconduct, but will be paid to the employees who have been discharged between the 1st January, 1948, and the date of the publication of this award in the Official Gazette. Salary for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s actually to prove for is the present value of a future benefit that accrues to the workers. Inasmuch as there is no foolproof way in evolving the present value of a future benefit such provisions cannot be said to be either adequate or correct. In the circumstances the provision is disallowed and actual payments as and when made allowed to the company. " This passage shows that the Income-tax Officer rejected the assessee's claim because of two reasons : Firstly, that the claim for deduction as made by the assessee was on the basis of " the present salaries ", meaning the salaries as payable in the accounting year 1954, and, secondly, that what the assessee was required in law to prove was the present value, meaning the value in 1954, of a future benefit that would accrue to the employees, but that there was no fool proof way of evaluating such present value. The first reason negatived the method in fact adopted by the assessee in arriving at the amount of the gratuity for which, provision was made during that year. The second reason is a more general one and it states that it would not at all be possible to evaluate the present liability in this particular year, i.e., in 1954, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant previous years are allowable deductions in computing the business income of the assessee for 1952-53, 1955-56 and 1956-57 ? " This question is the same which was formulated by the assessee in its application to the Tribunal for this reference. Mr. Dastur, the learned counsel for the assessee, contended that the assessee was entitled in law to a deduction for the provision made by it against its liability to pay to the workers in future amounts by way of gratuity under the said award. In support of this contention he relied upon the two judgments of the Supreme Court in Metal Box Company of India Ltd. v. Their Workmen and Commissioner of Income-tax v. Swadeshi Cotton and Flour Mills Pvt. Ltd. Mr. Joshi, the learned counsel for the revenue, on the other hand, contended that the assessee's claims for deduction of the said three amounts provided by the assessee in respect of the said three accounting years were for a future liability, that the liability was a mere contingent liability and that the claim was therefore not sustainable in law. In support of his contention he relied upon the judgment of the House of Lords in Southern Railway of Peru v. Owen, two judgments o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision by itself suffers from many shortcomings. To illustrate, it does not take into account the possibility of the death of a worker, nor of his being dismissed for dishonesty or misconduct. Moreover, it also does not take into account what would be the amount to be provided for a worker in the accounting year on the basis of his last salary which he may be earning at the time when gratuity may become payable to him which may be after as few as one or two years or as many as fifteen or twenty years. Moreover, what would have to be taken into account would be the present value of a future liability, i.e., by ascertaining the amount of the future liability and setting apart during a particular year an amount which, with interest earned thereon, would equal the amount which would be payable to the worker as gratuity in future. There are many other shortcomings which we need not dilate on. Shortly stated, there are a large number of uncertain factors to be provided for by a proper evaluation. It might, however, have been possible---and on this point we do not express any opinion-for the assessee to arrive at some scientific basis for calculating in each accounting year the amount wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the affirmative, how is the amount of liability to be quantified? In our opinion, question No. 1 would be a proper question as it does form part of the question as formulated and referred to us and arises on the decision of the Tribunal. Question No. 2, however, would not, in our opinion, be a proper question as it seeks advice in advance of a decision by the Tribunal. The only question which can properly arise in this behalf, on the facts and in the circumstances of the case, is whether the specific amounts as claimed by the assessee were allowable or not as a deduction by way of expenditure. We can re-formulate the question only to bring out the real disputes between the parties, the disputes being such as existed before the Income-tax Officer or the Appellate Assistant Commissioner or the Income-tax Appellate Tribunal. Before the Income-tax Officer the assessee urged its contention for all the three specific amounts claimed on the basis as mentioned earlier. The Income-tax Officer specifically refers to what he thought was the shortcoming in the basis. Neither in its appeal to the Appellate Assistant Commissioner nor in its appeal to the Tribunal did the assessee canvass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion referred and the second question suggested by him cannot, in law, be raised. In this connection it may be stated that the judgments of the House of Lords in Southern Railway of Peru v. Owen and of the Madras High Court in Commissioner of Income-tax v. Indian Metal and Metallurgical Corporation show that it is conceivably possible that a scientific method of calculation may, given the requisite facts, be possible. The said judgment of the House of Lords is a leading case and if a scientific method was available to the assessee on the lines envisaged in that judgment the assessee should have made a timely attempt to base its case on such scientific basis. Under the circumstances even if the point of law canvassed for by Mr. Joshi were to be decided against the revenue, the assessee must fail before us. We, therefore, do not decide the contention urged by Mr. Joshi and answer the question only on the footing of the said three specific amounts and the basis on which they have been calculated. We, therefore, answer the question in the negative. Before we part with this reference, we may record that during arguments the calculation of the provision made by the assessee in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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