Law: Income Tax Ordinance, 1979

Section: 25

Income-tax Ordinance (XXXI of 1979)---S. 25 (c)--Gratuity--Provision of gratuity claimed as expense-¬Whether such provision determined liability of assessee towards employees--Validity of claim--Liability of gratuity would remain a mere provision and would not be permissible deduction except such amount of it which was actually paid during relevant assessment year--Where there was no evidence on record to show that any agreement was arrived at regarding gratuity between the workers' union and assessee, the liability of gratuity would not be determined liability and was a mere provision. (1982) 46 Tax 4 (Trib); I.T.A. No.1000/KB of 1977-78 etc. recorded on 25th September, 1978; I . T . A No.958-A / K B of 1982-83 recorded on 8th January, 1986; I.T.A. No.993/KB of 1981-82 etc. decided on 11th July, 1985; I.T.A. No.1000/KB of 1977-78; 44 Tax 62 (Trib); I.T.A. No.993/KB of 1981-82 and I.T.A. No.958-.a/KB of 1982-83 ref. (1981) 44 Tax 62 (Trib) distinguished. ORDER This departmental appeal is directed against the order of learned Commissioner of Income-tax (Appeals) recorded by him on 31st May, 1983. 2. The brief facts giving rise to it are that in assessment year 1981-82, the respondent, public limited company, claimed Rs.1,89,204 as deduction in its Profit and Loss Account on account of gratuity. Since the Income Tax Officer was of the view that amount of Rs.1,89,204 was nothing but a provision for gratuity. It was not a permissible deduction. He, therefore, disallowed it and added it to the total income of the respondent. Having been aggrieved and dissatisfied the respondent went up in appeal and the learned commissioner of Income-tax (Appeals) by his impugned order ordered the deletion of aforesaid amount with the following observation:---- "But at the same time considering that the appellant follows mercantile system: of accounting he cannot be denied the privilege making for expenses that according to him became his liability during the course of a year. Under these circumstances I will be inclined to concede the contention of the assessee that the provision for gratuity be allowed to him as an expense on the basis of calculation and determined liability…

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