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TMI Blog1976 (12) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... towards the gratuity liability on the ground that the liability was settled in the relevant accounting year. The ITO however, held that under s.37 the assessee was entitled to deduction of the liability of the previous year only. He, therefore, disallowed the claim to the extent of Rs. 2,19,216. 3. On appeal the AAC found that the gratuity scheme itself came into force only on 3rd July, 1971 and, therefore, the liability to pay gratuity itself arose only during the relevant accounting year. He further observed that while making provision for the liability the services of the employees for the prior years had to be taken into account and this was actually done by the actuary while arriving at the provision. He, therefore, accepted the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was no scheme of gratuity for the assessee company. In the Directors' Report dated 22nd May, 1972 accompanying the balance-sheet for the year under appeal it was stated that the above scheme was introduced during 1971 pursuant to an agreement with the Employees' Union providing for the payment of gratuity to employees completing a minimum period of ten years service on their retirement. It is also not in dispute that the sum of Rs. 2,79,418 was shown as a provision for such payment. The above sum was fixed by applying the actuarial principles by an actuary as per his report dated 20th March, 1972. This liability for gratuity was worked out as on 31st Nov., 1970 relevant for the assessment year under appeal. From the above facts, it is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for the asst. yr. 1962-63. This sum was claimed by the assessee-company as business expenditure, but the claim was disallowed by the ITO, the AAC and the Income-tax Tribunal. On a reference to the Allahabad High Court it was contended for the Revenue that at best the assessee company could claim only such gratuity relevant to the previous year. The discounted value of the assessee company's liability to pay gratuity based on an actuarial valuation was determined at the instance of the High Court at Rs. 1,05,200. Before the High Court the Calcutta Company's case (37 ITR 1) Indian Molasses company's case (63 ITR 470) were referred to, and finally the Metal Box Company's case (73 ITR 53) which according to Mr. Joshi makes only casual observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees under the Industrial Disputes Act, 1947. Two persons carrier on business in partnership under the name Messrs. Gemini Cashew Sales Corporation. The said partnership was dissolved on the death of one of the partners and the business was taken over by the surviving partner on his own account. The employees, however continued to serve without break under the survivor without any alteration in the terms of employment. In the assessment of the firm it was urged that an amount of Rs. 1,41,506 should be taken into account under the head "Gratuity payable to workers of the business" in settling the accounts of the firm till the date of the death of one of the partners as a permissible outgoing. While the ITO and the AAC rejected the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in computing the taxable profits of a trader, even if in certain conditions the obligation may "cease to exist because of forfeiture of the right. Where, however, the obligation of the trader is purely contingent, no question of estimating its present value may arise, for to be a permissible outgoing allowance, there must in the year of account be a present obligation capable of commercial valuation." The above observation lay down the principle that the present value on commercial valuation of money payable in future under a definite obligation would be permissible outgoing or deduction. In the case before the Supreme Court it was held that the liability to pay retrenchment compensation arose for the first time after the closure of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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