TMI Blog1982 (3) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... TO. The facts are not in dispute. The assessee had established a gratuity fund knows as 'Jawahar Mills Ltd. Employees Gratuity Fund' from 1-12-1972. However, approval was asked for and obtained for 'Group Gratuity-cum-Life Assurance Scheme' as such, as seen from a copy of the Commissioner's order in C. No. 207(44)73 dated 3-12-1973. The trust deed itself provides that the intention is to provide for payment of gratuity by taking insurances on the lives of employees. It is in pursuance of this provision that the Group Insurance Scheme was entered into. The scheme covers the gratuity payable to persons whose services are terminated or come to an end on the death, resignation or retirement of an employee during the period covered by the policy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1976-77 while a similar claim of Rs. 43,693 for the assessment year 1975-76 was rather inconsistently disallowed. In the first appeal, the Commissioner (Appeals) found that there was a pre-existing approved gratuity fund. A mere provision for payment to such fund would have qualified for deduction under section 40A(7)(b)(i) of the Act. Even if no provisions were made, it would be allowable, according to the first appellate authority, under section 36(1)(v) which authorises the allowance of 'any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust'. He was of the view that under the mercantile system of accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Further as decided by a Special Bench of the Appellate Tribunal in Soft Beverages (P.) Ltd. v. ITO [1979] 13 CTR (Trib.), the liability itself constitutes a provision, following the rationale of the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. That is the view taken in the assessee's case itself for the assessment year 1973-74 in IT Appeal No. 329/Mad./1977-78 dated 23-9-1980 (C-Bench) to which one of us was a party. What is, therefore, required is the satisfaction of other conditions like a pre-existing approved gratuity fund in the case of section 40A(7)(b)(i) or a fund constituted within the stipulated date followed by payments in instalments as required under section 40A(7)(b)(ii). In the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a provision should necessarily be made in the 'books of account' maintained by the assessee and that the word would cover a claim for deduction to meet a liability, following the decision of the Supreme Court in the case of Kedarnath Jute. All that section 40A(7) requires is that in case of a provision for gratuity it should satisfy the conditions laid down therein. It was for this reason that another Bench of this Tribunal in IT Appeal No. 822 (Bom.) of 1978-79 dated 25-9-1980 (published at 459 of December 1980 issue of "Taxes and Planning" from Bombay) held that even a subsequent reversal of the provisions will not affect the assessee's right. We appreciate the anxiety of the revenue in such a case that the assessee has the use of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim is admissible even under section 40A(7)(b)(i). In this view it is not necessary to go into the argument of the learned Commissioner (Appeals) that the claims are admissible even under section 36(1)(v) on the view that the word 'paid' in the claim included what is payable. 7. The learned departmental representative raised an additional argument in that the assessee has covered its liability for gratuity by insurance and the premia thereunder has been allowed. Hence, according to him, there is no case for any further allowance. This argument overlooks the fact that there is a further but certain obligation, additionally during the year (called incremental liability) which is actuarially measured (sic). The premium covers only the li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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