Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1972-73 - Whether liability to gratuity accrued to assessee-company on basis of scheme framed during relevant previous year and based on actuarial valuation, was an allowable deduction under section 37(1) irrespective of period involved - Held, yes FACTS For the assessment year 1972-73, the assessee-company claimed deduction in respect of the amount representing provision for gratuity made on the basis of actuarial valuation and the scheme framed during the relevant previous year. The ITO disallowed the assessee's claim on the grounds that the gratuity liability pertained to the liability for earlier period and that the deduction could not be allowed in view of the provision of section 36(1)(v). On appeal, the AAC allowed the deduction. On appeal by the revenue, the Tribunal upheld the order of the AAC. On reference: HELD In view of the fact that the liability to gratuity accrued in the instant case on the basis of scheme framed during the previous year, it had to be held that the assessee's liability as at the end of that year, irrespective of period involved, was the liability for the year. The assessment year involved being assessment year 1972-73, i.e., the year to which newly inserted provisions of section 40A(7) were not applicable, it was to be further held that liability based on actuarial valuation was allowable as deduction. The Tribunal was, thus, justified in allowing the deduction to the assessee. CASE REVIEW Madho Mahesh Sugar Mills (P.) Ltd. v. CIT [1973] 92 ITR 503 (All.)followed and relied upon. CASES REFERRED TO Madho Mahesh Sugar Mills (P.) Ltd. v. CIT [1973] 92 ITR 503 (All.), Metal Box Co. of India Ltd. v.Their Workmen [1969] 73 ITR 53 (SC) and India United Mills Ltd. v. CIT [1975] 98 ITR 426 (Bom.). Dr. V. balsubramanian, J.P. Devadhar and K.C. Sidhwa for the Applicant. Arun Sathe for the Respondent. JUDGMENT Sugla, J. - The only one question referred to this Court at the instance of the department is: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the decision of the Appellate…

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