TMI Blog1982 (10) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... gratuity was actually paid, the assessee claimed the payment as a deduction or outgoing of the business in the computation of the assessable profits. In the accounting year relevant to the year 1971-72, the assessee wanted to introduce a scientific system to provide for the payment of gratuity to its workmen. Part of that scheme was to make a provision every year out of the net profits as and towards probable gratuity liability worked out on the basis of actuarial valuation. Any provision of this kind would be a charge against the profits of the year. In the assessment year 1972-73 relevant to the previous year ended with December 31, 1971, the assessee claimed deduction towards provision made for gratuity in the sum of Rs. 1,46,356. In that account year the assessee also happened to make an actual payment out of Rs. 80,282 towards gratuity payable to certain retired employees who retired during that year. The ITO allowed the actual payment of gratuity in the sum of Rs. 80,282 as an admissible deduction but refused to deduct Rs. 1,46,356 being the provision made by the assessee as regards the existing employees and as and towards their possible gratuity liability as and when it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gratuity while the assessee had obtained deduction for the actual payment of gratuity for a sum of Rs. 80,282. Learned counsel has submitted that the switch over by the assessee to the system of making provision for gratuity really created a change in the method of accounting. In any case, according to the learned counsel, the claim of the assessee both for allowance of the payment of the gratuity to its retiring employees and the deduction towards provision for gratuity cannot be granted in one and the same year of account. The contention put forward by the standing counsel for the Department does not seem to us to be quite in point, partly in view of the remand by the Tribunal for the specific purpose of ascertaining whether any part of the actual payment of gratuity to the retiring employees during the year had been duplicated in the provision for gratuity claimed by the assessee in the sum of Rs. 1,46,356. We do not also think that there is any change in the method of accounting by reason of the assessee having shifted to the system of making a provision for gratuity. All along, and even before introducing this new system the assessee was employing the mercantile method of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellate Tribunal uphold the claim of the assessee on appeal. At the time of hearing the appeal it was brought to the notice of the Tribunal that in the case of another mill in Coimbatore, the Commissioner had passed an order allowing deduction of similar mahimai collections. Referring to that order of the Commissioner, the Tribunal observed thus : " In a sister company which is also running a textile mills in Coimbatore, the Commissioner of Income-tax u/s. 264 had deleted the mahimi collections as not taxable. When the Commissioner of Income-tax himself has no case that it is taxable, we fail to see why this point should be taken as the ground against the Appellate Assistant Commissioner's order. We see no merit in the department's contention." The argument of the learned standing counsel for the Department before us, was that the Tribunal did not think fit to go into the question of the allowability or disallowability of the mahimai collections on its merits but merely disposed of the controversy by forcing the Department to take consistent stand in all the cases of Coimbatore mills presenting similar claims for deductions of mahimai collections. We see the force of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credited and payments made thereout were debited. It was also found that no part of the collection of dharmada was ever credited to the trading account of the assessee nor were they carried to the P. L A/c of the mills. On these facts, the Supreme Court held that the dharmada collections made by the assessee in that case cannot be regarded as part of the assessee's trading receipts taxable under the head " Business ". In the course of their judgment, the Supreme Court observed that while dharmada was stated to have been collected towards charity, it was undoubtedly a payment, which the customers were required to pay in addition to the price of the goods. Nevertheless, it was held that the purchase of goods by the customers only provides the occasion for the collection and it does not provide the consideration for the dharmada amount taken from the customer. The Supreme Court also observed that when once it is found that collections of dharmada were kept separate and they were not carried over to the trading account or trading and profit and loss account but kept separate, it is a matter of indifference whether the assessee had retained to himself any wide discretion in regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books has now clearly laid down that where the intention of the parties is that mahimai or dharmada is taken and given not as a part of the purchase price but towards charity, such amounts cannot be regarded as trading receipts. There is no material put forward by the Department in this case in support of the proposition that mahimai collections in this case were really intended by the assessee-mills as well as by the yarn traders concerned as part of the trading receipts or sales turnover of the assessee. We are, therefore, of the opinion that the second question must be answered in favour of the assessee and against the Department. The learned standing counsel for the Department made a reference to a Bench decision of this court in CIT v. N. S. Pandaria Pillai [1969] 73 ITR 457. The assessee in that case who was engaged in the manufacture and sale of washing soaps, collected from his customers half a per cent. of the sale price. This; half a per cent. was separately shown in the relative bills as for Mummoorthy Vinayagar Charity. The total of the collections in that case for a given year amounted to Rs. 2,270 and this was charged to P. L. A/c. It appears from the records i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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