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TMI Blog1992 (9) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... n for the first time before the Tribunal that the assessee had adopted the cash system of accounting in respect of liability for gratuity, when the matter had proceeded before the lower authorities on the admitted footing that the system of accounting adopted was mercantile ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in coming to the conclusion that the assessee adopted cash system of accounting for the purpose of liability for gratuity for the assessment year 1975-76 ?" In order to answer the aforesaid questions, relevant facts shall have to be stated : (i) The assessee is a public limited company, and the relevant assessment year is 1975-76. For the previous year ending on Dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would make any difference. At the hearing of this reference, our attention was invited to the decision of the Supreme Court in the case of Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585. In the case before the Supreme Court, the company had entered into an agreement with the workers' union for payment of gratuity. Its practice was to account for gratuity on cash basis as and when paid. On the coming into force of the Payment of Gratuity Act, 1972, with effect from September 16, 1972, a statutory liability was created on the company to pay gratuity to its employees as per the provisions of the said Act. The company, by actuarial valuation of its liability under the Act, made a provision of Rs. 20,00,000 against the total accruing liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection had effect notwithstanding anything to the contrary contained in any other provision of the Act relating to the computation of income under the head " Profits and gains of business or profession ". In other words, section 40A had effect notwithstanding anything contained in sections 30 to 39 of the Act. In view of this decision, it is clear that the assessee was not entitled to claim its liability for gratuity calculated on actuarial valuation at Rs. 20,03,569 be allowed under section 37 of the Act, 1961. As observed by the Supreme Court unless the provisions of section 40A(7) are satisfied, there would not be any entitlement to the assessee to claim deduction of liability arising from the payment of gratuity and that sections 30 to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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