Law: Income Tax Act, 1961

Section: 36,36(1)(v)

Income-tax---Business expenditure---Contribution to approved gratuity fund--­Conditions precedent---Condition that employee should have rendered service for five years or more---Employees of holding company taken over by assessee---Service of employees for holding company could be taken into account in computing period of five years---Indian Income Tax Act, 1961, S.36(1)(v). In considering the question whether the amount paid is allowable under section 36(1)(v) of the Income Tax Act, 1961, one has - to focus one's attention only on the question whether the conditions prescribed in section 36(1)(v) of the Act are complied with. The scope of inquiry under section 36(1)(v) of the Act is limited and the inquiry is limited to the question whether the employees for whose benefit funds had been transferred, had put in five years of service or more. The assessee was a subsidiary of S & Co. The employees of the assessee-company were previously the employees of the holding company. The assessee-company was incorporated on December 19, 1973. According to the assessee, there was a continuity of the service of the employees and for the purpose of calculating gratuity, the services rendered by the employees of the assessee-company in the holding company should be taken into account and after taking note of the entire service rendered by the employees in both the companies, the assessee made a contribution of Rs.3,97,628 towards the approved gratuity fund. The assessee claimed the same as deduction in the determination of the computation of the income for the assessment year 1977-78. The Income-tax Officer rejected the claim of the assessee. The Commissioner of Income-tax (Appeals) and the Tribunal, however, allowed the deduction. On a reference: Held, that the finding of the Tribunal was that all the conditions prescribed under section 36(1)(v) of the Act as well as the relevant rules had been complied with. When the agreement of transfer was taken into account, it-was clear that the employees had rendered continuous service for more than five years. On the facts of the case, the Tribunal was right in holding that the sum of Rs.3,97,628 being the contribution made by the…

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