Law:

Section:

Section 36(1)(v), read with section 37, of the Income-tax Act, 1961 - Gratuity - Assessment year 1970-71 - Whether mere fact that a claim will not fall under any of sections 30 to 36 will not automatically make claim unsustainable under section 37 as well - Held, yes - Whether determination of profits and gains by prudent employer by taking into account liability towards gratuity relatable to year of account is permissible - Held, yes - Assessee-company made provision for gratuity for its employees in accordance with Kerala Industrial Employees Payment of Gratuity Act, 1970 - Whether assessee was entitled to deduction under section 37(1) in respect of said provision - Held, yes FACTS The assessee-company had made provision for gratuity for its employees in accordance with Kerala Industrial Employees Payment of Gratuity Act, 1970 (Gratuity Act) and claimed deduction for same. The assessee contended that such deductions are permissible even though the liability in question may be only a contingent liability, provided a real and true estimate can be made of the present value of that contingent liability. The revenue, on the other hand, contended that deduction towards gratuity liability can be made only under section 36(1)(v) and since, admittedly, in the instant case the terms of section 36(1)(v) not having been satisfied, such liability could not be reckoned for purposes of determining the true profits and gains. HELD The object of section 37(1) which is very similar to section 10(2)(xv ) of the, 1922 Act, is not to preclude consideration of a claim which would not fall under sections 30 to 36. In other words, the mere fact that a claim will not fall under any of the sections 30 to 36 will not automatically make the claim unsustainable under section 37(1) as well. To say so would be to detract from the residuary nature of the provision in section 37(1). The residuary nature of the provision in section 37(1) will, therefore, have to be given its full play. Bearing in mind the reason for the introduction of the words in section 37(1) within the brackets "not being expenditure of the nature described in sections 30 to 36" it is clear that those words do not…

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