TMI Blog1975 (12) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... " The year of assessment with which we are concerned is 1971-72. The assessee had claimed a sum of Rs. 8,60,690 as liability towards gratuity payable to its workmen as a deduction under section 2(m) of the Act. Section 2(m) runs thus : " 'Net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than ........" We are not concerned in this case with the exclusions enumerated under clauses (i), (ii) and (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a 5 year period, the employee gets absolute right for the gratuity and only the payment of such gratuity is postponed to a later date. Under no circumstances can an employee who had completed 5 years of service be denied the gratuity. In the Standard Mills' case, the payment of gratuity depended on the good behaviour of the employee till the date of his retirement, dismissal, etc. Therefore, in that case, the payment was entirely contingent, whereas in the assessee's case, it is clearly an accrued liability." This reference has come to us at the instance of the Commissioner of Wealth-tax. The section in the Kerala Industrial Employees' Payment of Gratuity Act, 1970, for short, " the Gratuity Act ", which imposes the liability to pay g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y particular year, not more than five per cent. of the total number of employees in the factory, plantation, establishment or undertaking shall be entitled to payment of gratuity and if the number of employees who voluntarily retire or resign from service exceeds five per cent. of the total number of employees, the eligibility of an employee for payment of gratuity shall be determined on the basis of the strength of the service of the employee in the factory, plantation establishment or undertaking : Provided further that an employee who voluntarily retires or resigns from service shall be eligible to claim gratuity only if one month's notice in writing of his intention so to retire or resign had been given to the employer." In Standa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 4 though there are differences which we consider to be immaterial. Dealing with the provision, the Supreme Court had no hesitation to state : " The right to obtain gratuity under the awards arises only when there is determination employment and not before. The liability does not exist in praesenti ; it is contingent upon the determination of employment. This court pointed out in Kesoram Industries Cotton Mills' case : "..........................the following definition is unanimously accepted : 'a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation : debitum in praesenti, solvendum in futuro'." Under the award, as under section 4, certain events have to happen wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain decisions relied on by counsel on behalf of she assessee. Those decisions are in Commissioner of Wealth-tax v. Ranganayaki Gopalan and Commissioner of Wealth-tax v. Phipson and Company Private Ltd., the former decision being that of the Madras High Court and the latter of the Calcutta High Court. In the case before the Madras High Court, the question arose from the terms of a trust deed which provided that the company should transfer to a proposed trust a sum of Rs. 19,50,000 towards the liability for gratuity up to a particular date on the basis of an actuarial valuation. The proposed trust deed contained a clause that the company had the option to pay to the fund either the entire sum in one lump sum or in such instalments and at suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case before us, there is no provision for funding amounts towards gratuity to a trust fund. We, therefore, express no opinion on that aspect. The decision is not helpful in construing the effect of section 4 of the Act. Counsel invited our attention to the decision of the Gujarat High Court in Commissioner of Wealth-tax v. Sayaji Mills Ltd., wherein the view seems to have been taken that a debt would arise from the mere fact of the liability under statute unlike in the case of a settlement or of an award. We do not think that on principle there can be any distinction between the liability under an award and that created by a statute. If the liability created either by the award or the Act is only a contingent liability, then section 2(m) wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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