Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1971-72 - Assessee sold its tea estates by agreement dated 15-4-1970 and transferred ownership on 30-4-1971 - In computing business loss for assessment year in question, it claimed deduction in respect of amount withheld by buyer out of sale proceeds of estate for payment of gratuity to assessee's employees in respect of their services under assessee - Whether gratuity is not contingent liability but present liability - Held, yes - Whether with sudden imposition of such liability under statute, assessee became entitled to make provisions therefor in accordance with mercantile system of accounting which it had always followed and to claim deduction as business expenditure - Held, yes - Whether fact that subsequently business was transferred, made no difference to liability and concomitant right of deduction of said liability in assessment year in question - Held, yes Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance of - Assessment year 1971-72 - Whether on facts stated under head 'Business expenditure - Allowability of', since actual sale took place on 30-4-1971, assessee was entitled to claim depreciation in respect of plant and machinery and building under section 32(1)(iii) not in assessment year in question but in subsequent assessment year - Held, yes FACTS The assessee in the accounting year relevant to the assessment year 1971-72, entered into an agreement dated 15-4-1970, with 'G' for the sale of four of its tea estates. The possession of the tea estates was handed over to the buyer on 1-5-1970. In the following accounting year, relevant to the assessment year 1972-73, by a deed of sale dated 30-4-1971, the ownership in the property was also transferred to 'G'. In terms of the agreement dated 15-4-1970, the assessee was entitled to receive sale consideration out of which certain sum was to be retained by the buyer as a reserve fund for settlement of the assessee's liability towards gratuity payable to the employees of the four estates in respect of their services under the assessee. The assessee followed the mercantile system of…

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