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Section 37(1) of the income-tax act, 1961-Business expenditure-West Bengal employees' payment of compulsory gratuity act, 1971 came into force on 14-6-1971 creating liability on employer to pay gratuity to its employees-Assessee filed actuarial valuation showing discounted value of gratuity as on 31-7-1971, being last day of its accounting period relevant to assessment year 1972-73-Whether impugned liability was allowable in assessment year 1972-73 even though assessee had made no provision for it in its account books-Held, on facts, yes Facts The West Bengal Employees' Payment of Compulsory Gratuity Act, 1971 came into force on 14-6-1971 which created liability on the employer to pay gratuity to its employees. The assessee filed actuarial valuation for the accounting period ended on 31-7-1971, corresponding to the assessment year 1972-73, showing discounted value of gratuity at Rs. 77,246 as on 31-7-1971 and claimed it as deduction. The ITO repelled the claim on the grounds, inter alia, that the assessee had neither made any actual payment nor had made any provision for it in its books of account. On appeal, the Tribunal upheld the claim of the assessee. On reference : Held The question, in the instant case, was squarely covered by the decision in the case of CIT v. Eastern Spg. Mills Ltd. [1980] 126 ITR 686 (Cal.) and hence the assessee's claim was allowable. Further, it was held in Kedarnath Jute Mfg. Co. Ltd. v. C1T [1971] 82 ITR 363 (SC) that whether the assessee is entitled to a particular deduction or not, will depend on the provision of law relating thereto and not on the view which the assessee might take of its right nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. In the instant case, it was not denied that the liability under the West Bengal Gratuity Act, was a statutory liability. Moreover, the Act came into force for the first time in the accounting year relevant to the assessment year in question. Therefore, the claim for deduction could not be denied on that score also. Case review CIT v. Eastern Spg. Mills Ltd. [1980] 126 ITR 686 (Cal), Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR…

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