Law: Income Tax Act, 1961

Section: 36

Income-tax----Business expenditure---Gratuity---Initial contribution to approved gratuity fund ---I.T.O allowing only actuarial liability---Difference between actual, payment and actuarial liability---Also deductible ---Indian Income Tax Ac 1961, S.36. Payment actually made to an approved gratuity fund is expenditure Incurred for the purpose of business in the year in which the payment was made and allowable under section 37 of the Income Tax Act, 1961. Even after the introduction of the provision of section 40A(7) in the Act in 1973, there is no change in the legal position so far as the actual payment of gratuity is concerned. Hence the actual payment towards gratuity liability is allowable in the year in which it is paid. For the assessment year 1973-74, the assessee made a claim of Rs.1,93,756 being the initial contribution to an approved gratuity fund, calculated at 15 days salary for each year of completed service. Such calculation was on the basis of the salary as on the last day of the preceding accounting year for each employee. The Income-tax Officer disallowed the claim of the assessee to the extent of Rs.65,499 on the ground that it was in excess of the actuarially valued amount, which alone was considered by him as allowable. The Tribunal allowed the claim of the assessee. On a reference: Held, that the sum of Rs.65,499 representing the difference between actual payment made to the approved gratuity fund towards initial contribution and the actuarial liability for the same could be allowed as a deduction while computing the income of the assessee for the year 1973-74. Triplicane Permanent Fund Ltd. v. CIT (1989) 179 ITR 492 (Mud.) fol. JUDGMENT K. A. THANIKKACHALAM, J.---Pursuant to the direction given by this Court dated November 30, 1981, in T. C. No. 183 of 1981, the Tribunal referred the following question , for the opinion of this Court, under section 256(21 of the Income Tax Act, 1961 (hereinafter referred to as the "Act"): "Whether, on the facts and in the circumstances of the case and having regard to rule 104 of the Income-tax Rules, 1962, read with section 36(1)(v) of the Income .Tax Act, 1961, the Appellate Tribunal was right in holding…

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