Law: Income Tax Act, 1922

Section:

Income-tax----Business expenditure---Gratuity---Incremental liability---Amount allowed by A.O.---Tribunal increasing deduction---No material on record to justify such increase---Amount increased not deductible---Indian Income Tax Act, 1961. Held, that the Tribunal had proceeded on a misconception that the actuarial valuation on the basis of which liability for paying gratuity was allowed for the earlier assessment year ended on December 31, 1972, was Rs.6,82',088 whereas the amount actually allowed was Rs.7,85,730. The actuarial valuation for the year ended on December 31, 1973, was Rs.7,91,992. Incremental liability being the difference between Rs.7,91,992 and Rs.7,85,730, being the sum of Rs.6,264 had been allowed by the Assessing Officer. The Tribunal had chosen to deduct from the sum of Rs.7,91,992 a sum of Rs.6,82,088 and thereby, committed an error in thinking that the incremental liability would be of the order of Rs.1,09,905 of which. the amount paid during the year Rs.54,964 formed part. The Tribunal had not given any reason for ignoring the figure of Rs.7,85,730 which was undisputedly the amount allowed for the earlier assessment year as a liability based on the actuarial valuation. The finding of the Tribunal was flawed. It was not in dispute that the assessee maintained its accounts on the mercantile system. The liability for gratuity is calculated on the basis of an actuarial valuation which takes into account the total number of employees entitled to receive gratuity, and the incremental liability to each of them for gratuity with each additional year of service. There was nothing on record to show that the amount paid during the current year was the amount of further liability which had accrued during the year, and which liability had not been included in the actuarial valuation for the current year. In these circumstances, the Tribunal was in error in holding that the assessee was entitled to claim deduction of the total sum of Rs.61,228 on account of the gratuity to the employees for the assessment year 1974-75. THIS JUDGMENT DELIVERED BY R. JAYASIMHA BABU, J.---The question referred to us at the instance of the Revenue is as to whether the…

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