TMI Blog1972 (8) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the court was delivered by R. L. GULATI J.-Under section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal, Allahabad, has submitted a statement of the case inviting the opinion of this court on the following question of law : " Whether, on the facts and in the circumstances of the case and on a true construction of the Government notification dated April 27, 1961, it could be held that no liability accrued to the assessee-company for the payment of the gratuity for the assessment year under appeal ? " The assessment year involved is 1962-63, the relevant accounting period being the year ending on September 30, 1961. The assessee claimed to deduct a sum of Rs. 1,37,811 in the computation of its net income liable to income-tax. This amount, according to the assessee represented the sum which he would be required to pay to its workmen on account of gratuity. The claim was disallowed by the Income-tax Officer, the Appellate Assistant Commissioner of Income-tax and finally by the Income-tax Appellate Tribunal. The main ground for disallowing the claim, as set out in the order of the Tribunal, is that in the relevant accounting year no ascertained liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e period prior to the enforcement of this scheme on completion of ten but less than thirty years' or seasons' continuous service as the case may be, one-third of the month's pay to a permanent and one-sixth of the month's pay to a seasonal workman for every continuous year or season of service, as the case may be. (ii) For the period subsequent to the enforcement of this scheme on completion of ten years' or seasons' service--one-fourth of the monthly pay to a permanent and one-eighth to a seasonal workman for every completed year or season of service, and on completion of 20 years or seasons of service, but less than 30 years, one-third of the monthly pay to a permanent and one-sixth to a seasonal workman for every completed year of service. (iii) On completion of 30 years' or seasons' continuous service as the case may be, the amount payable for events mentioned in clauses (a) to (c). (2) A fraction of a year exceeding six months shall count as one full year and six months or less shall be ignored. (3) In calculating the amount of gratuity the period of service after the implementation of the wage structure as given in this order shall be taken first and the pay for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some doubt as to whether such a liability is capable of ascertainment and it could be called a liability in praesenti. The doubt has, however, now been set at rest by the Supreme Court in Metal Box Company of India Ltd. v. Their Workmen. The question that arose in that case was as to whether provision for gratuity was an expenditure which could be deducted out of the gross profit of the company for the purpose of working out the available surplus for payment of bonus to its workmen. A similar argument was raised in that case, namely, that the provision for gratuity did not represent any present and ascertainable liability and, as such, was not deductible. It was argued in that case just as in the case before us that the gratuity if and when paid could only be allowed as a deduction and not a provision for its payment made each year. This is what the Supreme Court observed : " In the case of an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capable of valuation and if profits cannot be properly estimated without taking them into account. " The next case relied upon by him was the case of Calcutta Co. Ltd. v. Commissioner of Income-tax. It is difficult to understand how that case helps the learned counsel. There the Supreme Court held that an estimated expenditure for the development of land which a person had undertaken to carry out was deductible as an expenditure even though no amount had actually been spent in that case. This case, in fact, supports the assessee. " The learned counsel then relied upon another decision of the Supreme Court in Indian Molasses Co. (Private) Ltd. v. Commissioner of Income-tax. It was laid down in that case that : " The income-tax law makes a distinction between an actual liability in praesenti and a liability de futuro which, for the time being, is only contingent. The former is deductible but not the latter. " No one disputes that proposition, but what is contended is that the liability for payment of gratuity ascertained on actuarial calculations is a liability which is a liability in praesenti and is capable of ascertainment. That is what the Supreme Court has held in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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