TMI Blog1997 (1) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... es and conditions of the fund as at the time approval was accorded by the Commissioner, the ad hoc provision of Rs. 2 lakhs is an admissible deduction ?" In so far as the abovesaid second question is concerned, learned counsel for the Revenue himself represents that the said question does not arise from the order of the Tribunal. Hence, we return the said question unanswered. In so far as the abovesaid first question is concerned, clause (a) of section 40A(7) (which came into force with effect from April 1, 1973, by an amendment introduced by the Finance Act, 1975) of the Act provides thus : "Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason." Then, the abovesaid clause (b)(i) thereof runs as follows : "Nothing in clause (a) shall apply in relation to : (i) any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity that ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also subsequently paid into the said fund, in four instalments subsequent to the said previous year, that is, on July 24, 1978, July 27, 1978, July 28, 1978 and September 28, 1978. The Income-tax Officer noticed that while the amount to be provided as on June 30, 1975, was Rs. 27,57,274 the liability as on June 30, 1976, was Rs. 26,44,572 only and that, therefore, there was no incremental liability on account of gratuity for the abovesaid previous year, viz., the year ending with June 30, 1976, in relation to the abovesaid assessment year in question. He, therefore, refused to allow the said sum provided for in the accounts. The assessee went on appeal to the Commissioner of Income-tax (Appeals). The latter held that inasmuch as the assessee had paid the said sum subsequently, the provision accorded in the accounts should be allowed as deduction. The Department, thereupon, went on appeal to the Appellate Tribunal. The Appellate Tribunal held that with the enactment of section 40A(7) of the Act, the concept of incremental liability and the actuarial valuation for the assessment years commencing from 1976-77 had become irrelevant and that those ideas were relevant only when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment accrued to the employees on their retirement or termination of their services and the liability to pay gratuity became the accrued liability of the assessee, when the employees retired or their services were terminated. Until then the right to receive gratuity is a contingent right and the liability to pay gratuity continues to be a contingent liability qua the employer. . . Since the amount of gratuity payable in any given year would be a variable amount depending upon the number of employees who would be entitled to receive the payment during the year, the amount being a large one in one year and a small one in another year, the employer often finds it desirable and/or convenient to set apart for future use, a sum every year to meet the contingent liability as a provision for gratuity or a fund for gratuity. He might create an approved gratuity fund for the exclusive benefit of his employees under an irrevocable trust and make contributions to such fund every year. Contingent liabilities do not constitute expenditure and cannot be the subject-matter of deduction even under the mercantile system of accounting. Expenditure which was deductible for income-tax purposes is toward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision for contribution to approved gratuity fund, the expression "that has become payable during the previous year" would apply, then, we should state with due respect that the abovesaid observation is not correct in the light of the observations in the abovesaid Supreme Court decision in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585. Then, with reference to Triplicane Permanent Fund Ltd. v. CIT [1989] 179 ITR 492 (Mad), relied on by learned counsel for the assessee, we must state that the said decision does not specifically deal with section 40A(7) or the provision spoken to therein, but is concerned with allowability of payment made by the assessee to the gratuity fund. It no doubt refers to the abovesaid observation in CIT v. Andhra Prabha P. Ltd. [1980] 123 ITR 760 (Mad) about which we have already expressed our view. In the present case, since it is found that while the gratuity amount as provided as on June 30, 1975, was Rs. 27,57,274, the liability as on June 30, 1976 was Rs. 26,44,572 only, it is not possible to hold that the provision made by the assessee was for the purpose of payment of the sum that has become payable during the previous year. The assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. In support of his contention that we have such jurisdiction, learned counsel drew our attention to section 150 of the Act. But, we must point out that section 150 will not at all help learned counsel for the assessee. Section 150 will come in, only in the case of income escaping assessment, which is dealt with in section 147 and the subsequent sections. In that connection only, sub-section (1) of section 150 says thus : "Notwithstanding anything contained in section 149, the notice under section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision or by a court in any proceeding under any other law." Further, though in sub-section (1) of section 150, the above referred to term "at any time" is used, sub-section (2) of section 150 says thus : "The provisions of sub-section (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that sub-section relates to an assessment year in respect of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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