TMI Blog1997 (2) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 36(1)(v) and 40A(7) of the Act, the Appellate Tribunal was right in holding that the assessee is entitled to the deduction of Rs. 3,46,400 representing the provision for gratuity as at the end of the previous year and not Rs. 1,20,738 being the incremental liability for the assessment year 1975-76 ? 4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 34,006 being money kept apart out of sale proceeds of molasses for creation of adequate storage facilities under the Molasses Control (Amendment) Order, 1962, did not form part of the assessee's income and, therefore, should not be included in its total income ?" The assessee is a private limited company and for the assessment year 1975-76, it filed its return of income declaring an income of Rs. 57,27,735 and the Income-tax Officer completed the assessment under section 143(3) read with section 144B of the Act making certain additions. The disputed additions, inter alia, which are the subject-matter of the tax case, are as under : Rs. (i) Rebate on excise duty receivable but under dispute 21,46,400 with the Central excise authorities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards the fourth question, viz., money kept apart out of sale proceeds of molasses for creation of adequate storage facilities under the Molasses Control (Amendment) Order, 1962, this court in the case of CIT v. Salem Co-operative Sugar Mills Ltd. [1998] 229 ITR 285, has held that the amount kept apart cannot be included in the total income of the assessee. Following the said decision, we also answer the fourth question referred to us in the affirmative and against the Department. The facts relevant for answering the first question are as under : The assessee received a sum of Rs. 21,46,400 representing the amount of incentive rebate allowed by the Central excise authorities in terms of the notification dated October 4, 1973. The Central Government, by a notification dated April 20, 1974, allowed the "incentive rebate" to factories engaged in the manufacture of sugar which have produced sugar in a particular period in excess of the production of any corresponding period of earlier years. The notification proceeded on the basis that if the sugar produced in a sugar factory commencing from the first day of May, 1974, and ending with June 30, 1974, is in excess of 180 per ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the grant of rebate. 'The Commissioner (Appeals) also noticed that the order of the Central excise authorities withdrawing the rebate has not become final and, therefore, he held that there was no case of deduction of the sum of Rs. 21,46,400 and he gave a further direction that when the matter reaches its finality, it is open to the assessee to claim its deduction of the same, The assessee took the matter in appeal before the Appellate Tribunal. The Appellate Tribunal held that the rebate was withdrawn by an order of the Central excise authority and at the time of making assessment, the position was that the assessee was not entitled to the rebate in law. The Appellate Tribunal, therefore, held that the mere fact that the assessee has preferred an appeal would not in any way detract from the legal position that the assessee was. not entitled for the rebate under the law at the time of assessment. The Appellate Tribunal placed reliance on a decision of the Supreme Court in the case of Kedarnath Jute Manufactutring Co. Ltd. v. CIT [1971] 82 ITR 363, and held that the fact that the right of the assessee to get the refund was disputed in appeal cannot disentitle the assessee from c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned single judge of this court, following a decision of the Andhra Pradesh High Court held that the Government was bound by its earlier clarification and in effect this court has upheld the claim of the assessee for the rebate under the notification. The writ petitions were carried on appeal by the excise authorities in W. A. No. 304 of 1980, and it is stated by learned counsel for the assessee that the judgment of the learned single judge was upheld in the writ appeal. It is also stated by learned counsel for the assessee that the judgment in W. A. No. 304 of 1980 has become final and to his knowledge, the matter is not pending before the Supreme Court. In view of the subsequent developments that have taken place in the course of litigation in withdrawing the rebate and ultimately restoring the rebate originally granted in favour of the assessee, there is no dispute that the assessee became entitled to the rebate of Rs. 21,46,400. The Appellate Tribunal's view that the subsequent order of withdrawing the rebate would wipe out the earlier order is no longer sustainable in law as the subsequent order withdrawing the rebate was set aside by this court and the only order that remains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any of three previous years relevant to the assessment year, i.e., 1973-74, 1974-75 and 1975-76, as the provisions of section 40A(7) of the Act were inserted with retrospective effect. The Commissioner (Appeals) thus held that the entire provision would require to be disallowed. The assessee filed an appeal before the Appellate Tribunal and by the time when the Appellate Tribunal took up the matter for hearing, the Commissioner of Income-tax has recognised the trust by an order dated September 12, 1979, with effect from December 30, 1975. The Appellate Tribunal found that all the conditions under section 40A(7)(b)(ii) of the Act were satisfied on the facts of the case and, hence, the entire amount of Rs. 8,46,400 was liable to be allowed as a deduction. On behalf of the Department two contentions were urged before the Tribunal : (i) when the provision was made, the gratuity fund did not come into existence ; and, secondly, only incremental liability could be allowed. The Appellate Tribunal found that the provisions of section 40A(7) of the Act were introduced with retrospective effect from April 1, 1973, and when the provisions permitted the creation of the fund even after the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious years relevant to the assessment year, i.e., 1973-74, 1974-75 and 1975-76, and to deal with such a contingency, section 40A(7)(b)(ii) was introduced. The claim would be liable for deduction provided the following conditions are satisfied :--- "1. The provision is made in accordance with an actuarial valuation of the ascertainable liability of the assessee for payment of gratuity to his employees on their retirement or on termination of their employment for any reason ; 2. The assessee creates an approved gratuity fund for the exclusive benefit of his employees under an irrevocable trust ; 3. The application for the approval of the fund is made before January 1, 1976. 4. 50 per cent. of the provision is paid by the assessee by way of contribution to the approved gratuity fund before April 1, 1976, and the balance before April 1, 1977. 5. By Explanation 1 to that section, the provision also is required to be calculated at eight and one-third per cent. of the salary of each employee for each year of service." The Commissioner of Income-tax (Appeals) found that except the approval of the Commissioner to the fund, all the conditions were satisfied in the assessee's ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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