Law: General Clauses Act, 1897

Section: 6

Business expenditure When expenditure is incurred-Mercantile system of accounting-Ordinance in 1969 directing payment of gratuity-Act in 1970 repealing and replacing Ordinance--Provision for gratuity for earlier year made only in 1970 after Act came into force-Whether can be considered as expenditure of that year-Held no-Liability arose under Ordinance in previous year-Rights and liabilities under the Ordinance- whether continue after repeal of the Ordinance- Held yes The Kerala Industrial Employees Payment of Gratuity Ordinance, 1969, which came into force on December 10, 1969, was a temporary enactment as it was expected to expire on June 52, 1970. However, it was prematurely extinguished on February 18, 1970 by Section 13 of Kerala Industrial Employees Payment of Gratuity Act, 1970 (the Act), which reads as follows : "13. Repeal and Saving.-(1) The...Ordinance, 1961 (7 of 1969), is hereby repealed. (2) Notwithstanding such repeal, anything does or any action taken under the said Ordinance shall be deemed to have been done or taken under this Act as if this Act had come into force on the 10th day of December, 1969." The assessee firm, whose method of accounting was the mercantile system debited a sum of Rs. 56,173 to its profit and loss account and credited the same to the Gratuity and Retrenchment Compensation Payable Account in respect of the accounting year ending on December 31, 1970, relevant to the assessment year 1971-72. The assessee also claimed to deduct a sum of Rs. 2 lakhs odd as arrears of gratuity for the earlier years. The Appellate Tribunal upheld the assessees claim for deduction of both the amounts in the assessment for the assessment year 1971-72, on a reference : Held, that in CIT v. High Land Produce Co. Ltd. [1976] 102 ITR 803 (Ker), the High Court has held that deductions were permissible in respect of liability for gratuity arising during the relevant accounting year. The High Court has also held in L. J. Patel & Company v. CIT[1974]97 ITR 152 (Ker), that the liability that had accrued in an earlier year could not be taken into account for computing the income of subsequent years. In this case, the Tribunal held that had the…

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