TMI Blog1998 (8) TMI 608X X X X Extracts X X X X X X X X Extracts X X X X ..... Suraj Diamond Industries Ltd., which is a sister concern, with effect from 6-7-1991. Accounting to the assessee, the gratuity payable to him was arrived at ₹ 22,153 and this amount was credited in favour of M/s. Suraj Diamond Industries Ltd. with the consent of Shri Ajit Shah, to whom the amount was payable. It is stated that the amount was transferred to M/s. Suraj Diamond Industries Ltd. so that at the time of retirement the total gratuity payable to Shri Ajit Shah could be found out and paid. Thus, the contention of the assessee was that he had paid the amount. In token of this contention, the assessee produced before the Assessing Officer a receipt dated 6-7-1991 from Shri Ajit Shah, in which it is stated this is to acknowledge t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee-company that the said sum of ₹ 22,153 is shown as outstanding. He also agreed with the Assessing Officer when he had recorded that the employee';s acknowledgement is silent as to when the transfer of fund was made by the assessee to M/s. Suraj Diamond Industries Ltd. 4. I have heard Shri D.J. Thakkar, ld. Representative for the assessee, and Shri Krishna Murari, ld. Departmental Representative. Shorn of all tech-nicalities and accounting Jargon, it would appear that what all happened on 6-7-1991 when Shri Ajit Shah stopped working with the assessee-company and joined Suraj Diamond Industries Ltd. was that the sum of ₹ 22,153 which is due to Shri Ajit Shah towards his gratuity claim was made over or transferred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that even though there is no actual payment of this amount, it is enough if the liability is incurred the day on which the liability is transferred in favour of Suraj Diamond Industries Ltd. and as such the gratuity amount of ₹ 22,153 should be taken to have been paid. In support of this contention, the learned Representative for the assessee had cited the following decision : W.T. Suren Co. Ltd. v. CIT (1998) 97 Taxman 126(SC). The facts of that case are quite similar to the facts on hand. There, the question was about allowability of the gratuity amount due to the employees. In that case, one unit of the assessee-company was closed and the same was transferred to another who employed employees of closed units continuity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y amount paid as deduction. The Assessing Officer held that R alone would be entitled to claim the amount when paid by them to the assessee';s employees at the time of their respective retirement and therefore, he disallowed its claim. On appeal, the Commissioner (Appeals) held that there was no actual termination of the services of the employees and the discharge of the liability in question was capital in nature, and he upheld the Assessing Officer';s order. On second appeal, the Tribunal held that there was termination of the employment of the employees from the service of the assessee; that there was valid discharge of the payment of gratuity; that the assessee was still functioning; and that payment of gratuity amount was right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment of amount of gratuity to R was made as per the scheme of the assessee and it was not an ex gratia or some isolated payment. It was never disputed and, in fact, no question raised if the services of the employees of the assessee were not terminated and that being the position, the obligation of the assessee to make payment of gratuity to its employees was an obligation in praesenti. The payment of gratuity amount was with the consent of the employees transferred. Thus, the payment of gratuity awarded by the assessee in the circumstances of the case was an expenditure wholly laid or expended for the purpose of the business of the assessee and was allowable deduction. Apart from the above Supreme Court, the learned Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided for in the ordinary sense of the term ';provision'; occurring in the second limb of sub-clause (i)(b) of section 40A(7). Ultimately, the Tribunal took the view that the assessee was entitled to deduction under section 40A(7). In the facts of this case, the payment to the transferee company was made with the consent and approval of the employee, Shri Ajit Shah. He also passed a receipt. The gratuity liability which was hitherto subsisting against the assessee-company was taken over by the transferee company since the amount was made over by the transferee company to the transferor company on 6-7-1991, the date on which the assessee-company terminated the services of Shri Ajit Shah. Under the circumstances, the gratuity amount pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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