TMI Blog1980 (10) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under the provisions of section 37 of the Income-tax Act, 1961 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing the claim of the assessee in respect of payment of gratuity on the basis of 12 months salary last drawn under the provisions of section 37 of the Income-tax Act, 1961 ?" The third question which has been referred to us at the instance of the assessee is: "(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in not allowing the entire payment of gratuity under section 28 and/or under section 37 ?" The facts leading to this reference are as follows: The assessment years under reference are assessment years 1966-67 to 1969-70. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the assessee that the liability to the provident fund was attached to the business and not to the owners and, therefore, when the, said liability applied to the firm, it could be said to apply to the assessee-company which carried on the said business. The AAC did not agree with this contention and he confirmed the order of the ITO, so far as this amount of provident fund contribution was concerned. Against the decision of the AAC, the assessee took the matter in appeal before the Income-tax Appellate Tribunal and the Tribunal ultimately held that the assessee's claim for deduction of the impugned amount was allowable under the provisions of s. 37 of the I.T. Act, 1961, and the claim for provident fund contribution in the sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deduction of these so called gratuity payments because, according to those two authorities, there were no rules and no scheme for the payment of gratuity and there was no basis for making these payments to the widows and dependents of the different employees. Thus, when the appeal of the assessee was partly dismissed, it was for the assessee-company to seek a reference by making an application under s. 256(1) of the I.T. Act but no such application for reference under s. 256(1) was made. It has been held by the Supreme Court in CIT v. V. Damodaran [1980] 121 ITR 572 that it is only the party applying for a reference who is entitled to specify the question of law which should be referred. Nowhere in the I.T. Act, 1961, is there a right gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Tribunal to refer that question No. (3) at the instance of the assessee; the non-applicant, for the opinion of this court. Under these circumstances, we decline to answer question No. (3) which has been referred to us since it was not competent to the Tribunal to refer that question to us. As regards the question of provident fund contribution made by the assessee-company during the assessment year 1966-67 and that too being the amount referable to the period prior to the coming into force of the recognised provident fund which came into force from July 1, 1965, it is clear that the amount of Rs. 32,245 referable to the period prior to July 1, 1965, would not fall under s. 36(1)(iv) of the I.T. Act, 1961. That section speaks of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in question can be invoked. The position has been very much clarified now by the decision of the Supreme Court in Sassoon 1. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261. There, the Supreme Court held that the expression " wholly and exclusively " used in s. 10(2)(xv) of the Indian I.T. Act, 1922, did not mean " necessarily ". Ordinarily it was for the assessee to decide, whether any expenditure should be incurred in the course of his or its business. Such expenditure might be incurred voluntarily and without any necessity and if it was incurred for promoting the business and to earn profits, the assessee could claim deduction under s. 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. The fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to keep their workers satisfied and to see to it that the workers get the benefit of provident fund, and thus this was a payment made for the purpose of earning the profits of the business by the assessee or in the course of earning profits of the business by the assessee. Hence, the payment would satisfy all the conditions of s. 37 of the I.T. Act of 1961 and, therefore, the Tribunal was right in holding that the, amount of Rs. 32,245 paid by the company by way: of provident fund contribution even during the period prior to the recognition of the provident fund would be an allowable deduction under the provisions of. s. 37 of the I.T. Act, 1961. Question No. (1) is, therefore, answered in the affirmative, that is, in favour of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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