TMI Blog1997 (10) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case, the Appellate Tribunal was right in holding that the sum of Rs. 3,07,607, Rs. 1,19,655 being the provision for gratuity was an admissible deduction while computing the income of the assessee for the assessment years 1973-74 and 1974-75? 2. Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 40A(7) of the Income-tax Act, 1961, the Appellate Tribunal was right in allowing the provision for gratuity as a deduction? 3. Whether the Appellate Tribunal's view that there was sufficient compliance with the provisions of section 36(1)(v) of the Income-tax Act is sustainable in law when the entire contribution to the approved gratuity fund of the assessee was not made in cash and also not during the previous year relevant for the assessment year 1973-74? 4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was only discharging a liability for which a prior provision had been made for gratuity by way of a mere provision? 5. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the transfer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistant Commissioner against the orders of the Income-tax Officer for both the assessment years. The Appellate Assistant Commissioner found that the assessee had an approved gratuity fund and the assessee had made a provision of Rs. 3,07,607 and the payment was actually made to the fund on January 5, 1974. The Appellate Assistant Commissioner also found that the conditions prescribed under section 40A(7) of the Act were satisfied and the assessee was entitled to claim the deduction of Rs. 3,07,607 in the assessment proceedings for the year 1973-74. In so far as the next year is concerned, the Appellate Assistant Commissioner, following the reasons given in his order for the assessment year 1973-74, held that the assessee was entitled to claim the deduction for the assessment year 1974-75 as well. The Revenue filed appeals before the Income-tax Appellate Tribunal. The Tribunal found that in so far as the assessment year 1973-74 is concerned, the sum of Rs. 3,07,607 represented additional gratuity payable as a result of enactment of the Payment of Gratuity Act, 1972, and since the gratuity liability was fastened on the assessee-company during the accounting year, the assessee would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on a decision of this court in the case of CIT v. Loyal Textile Ltd. [1998] 231 ITR 573. In so far as the assessment year 1974-75 is concerned, the contention of learned senior counsel is that though it is not a case of provision, the assessee is not entitled to claim deduction under clause (v) of sub-section (1) of section 36 of the Act as the amount was not paid by the assessee by way of contribution towards an approved gratuity fund. According to learned senior counsel, the assessee had transferred to the approved gratuity fund and discharged its liabilities partly by securities and partly by transferring cash and the transfer of securities would not be sufficient and the payment to the gratuity fund should be made only by cash. He submitted that it is not clear as to how the securities were valued and it is also not clear at what value the bonds were transferred in discharge of the liability and how the liability was discharged for both the years by transfer of the securities. Mr. T. Srinivasamoorthy, learned counsel for the assessee, on the other hand, submitted that the case of the Revenue before the Appellate Tribunal was that, the assessee did not comply with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner allowed the appeal of the assessee for the assessment year 1973-74 on the ground that there was an actual payment to the fund on January 5, 1974. In the appeal by the Revenue against the order of the Appellate Assistant Commissioner before the Appellate Tribunal, the contention that was raised on behalf of the Revenue was that there was a change in the practice and there should be actual contribution to the fund and the amount cannot be claimed on accrued basis in so far as the claim for provision is concerned. It is not the case of the Revenue at any stage of the proceedings that the provision made by the assessee did not represent the amount payable during the relevant previous year. On the other hand, the Appellate Tribunal has observed that a sum of Rs. 3,07,607 claimed as deduction by the assessee represented the additional gratuity payable as a result of the Gratuity Act and the gratuity liability has been fastened on the assessee during the accounting year. The Appellate Tribunal also accepted the plea that mere provision would not be sufficient. But, the Tribunal found that there was an approved gratuity fund and the provision was made for the purpose of contributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has acknowledged the value of the securities given and credit for the amount was also given in the accounts of the recipient. The contention of learned counsel for the Revenue that there should be an actual payment of cash under the provisions of clause (v) of sub-section (1) of section 36 of the Act to discharge the assessee's liability is not acceptable on the facts of the case. The expression "any sum paid" occurring in clause (v) of sub-section (1) of section 36 of the Act has to be construed in the light of the expression, "paid" found in the other clauses of sub-section (1) of section 36 of the Act. It cannot be contemplated and also visualised that the Legislature has intended to give a different meaning when it employed the same expression "paid" in clause (v) of sub-section (1) of section 36 of the Act than that is contemplated or provided for in the other clauses of sub-section (1) of section 36 of the Act. The expression, "paid" is defined in clause (2) of section 43 of the Act to mean actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head "Profits and gains of business or profession". T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n "paid" in the light of the trustees' duties in making proper investments of the trust money. That apart, we are of the view that only after the introduction of section 43B of the Act, which was inserted by the Finance Act, 1983, with effect from April 1, 1984, the Act contemplates the actual payment of cash in the case of contribution to the gratuity fund. Therefore, the expression, "paid" in clause (v) of sub-section (1) of section 36 of the Act cannot be construed or confined only to the payment of cash alone during the relevant assessment year in question. The Supreme Court in the case of Raja Mohan Raja Bahadur v. CIT [1967] 66 ITR 378, held that if commercial assets are received by a trader maintaining accounts on cash basis in satisfaction of an obligation, income which is embedded in the value of the assets is deemed to be received and the receipt of income is not deferred till the asset is realised in terms of cash or money. The Supreme Court also held that it makes no difference whether the receipt of assets is in pursuance of an agreement or by law and once the trader receives the assets, by consensual arrangement or by operation of law, he received the income embedde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see as a licensee, had to make investment in approved securities and only those securities were transferred to the trustees of an approved gratuity in satisfaction of and in discharge of the assessee's liability to pay the gratuity amount to the approved gratuity fund. Therefore, when the trustees of the approved fund have accepted the securities, it must be taken that the assessee had discharged its obligation by actual payment. Further, the securities had been purchased earlier by making cash payment and only those securities which are valuable in nature and which are in the prescribed form of the securities under the Indian Trusts Act have been transferred. The assessee could have realised the money value of the securities and handed over the money to the trustees. If the money had been handed over to the trustees, the trustees should have invested the same in the approved securities as contemplated in the Electricity (Supply) Act. The assessee, instead of adopting such a circuitous process, transferred the securities themselves and the trustees of the approved gratuity fund also received the same and in this situation, it must be held that the assessee had paid the money by way ..... X X X X Extracts X X X X X X X X Extracts X X X X
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