(a) Income-tax--

----Business expenditure--Gratuity--Acquisition of private stage carriages- Employees of erstwhile companies taken over by new corporation without break in service--Right to receive gratuity preserved--Tribunal justified in allowing claim for deduction of gratuity--No question of law arose for reference.

Held, that, under the provisions of the Tamil Nadu Fleet Operators (Stage Carriage Acquisition) Act, the liability of the erstwhile employers to pay gratuity to the employees had been taken over by the assessee-Corporation on the vesting of private transport undertakings in it and the workers had been continued in service without any break, thus preserving intact the right to receive gratuity based on the total number of years of service put in by them under the erstwhile private transport companies prior to the taking over by the assessee-Corporation and under the assessee-Corporation after its take-over. Under the terms 6f the take-over, the assessee was bound to pay gratuity payable by the predecessor private transport companies and, in such circumstances, the claim of the Department that there should be a bifurcation and the entire payment could not be allowed as a, deduction was rightly negatived by the Tribunal. No question of law arose from the order of the Tribunal.

(b) Income-tax---

----Reference--Depreciation--Actual cost--Cost of route permits whether can be capitalised and added to the cost of vehicles--Question of law.

The question whether the cost of route permits could be capitalised and added to the cost of the vehicles for purposes of allowing depreciation was a question of law.

C.V. Rajan for Petitioner.

P.P.S. Janardhanaraja for Respondent.

JUDGMENT

RATNAM, J.--In these petitions under section 256(2) of the Income Tax Act, 1901, the Revenue seeks a direction to the Tribunal to refer the following questions of law for the opinion of this Court:

T.C.P.No. 561 of 1986:

For the assessment years 1977-78 and 1978-79:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in allowing the entire claim of gratuity liability as a deduction while computing the total income of the assessee for the assessment years 1977-78 and 1978-79?"

For the assessment year 1979-80:

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in allowing the entire claim of gratuity liability as a deduction while computing the total income of the assessee for the assessment year 1979-80?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the cost of route permits should be capitalized and allocated to the cost of vehicles for the purpose of allowing depreciation?"

T.C.P. No. 562 of 1986:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in allowing the entire claim of gratuity liability as a deduction while computing the total income of the assessee for the assessment years 1977-7$ and 1978-79?"

T.C.P. No. 563 of 1986:

"(l) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in allowing the entire claim of gratuity liability as a deduction while computing the total income of the assessee for the assessment year 1978-79?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the cost of route permits should be capitalised and allocated to the cost of vehicles for the purpose of allowing depreciation?"

T.C.P.No. 14 of 1988:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in allowing the entire gratuity liability of Rs. 5,05,000 as a deduction while computing the total income of the assessee for the assessment year 1977-78?"

In so far as the common question for the assessment years 1977-78 and 1978-79 and the first question for the assessment year 1979-80 in T.C.P. No.561 of 1986, the only question in T.C.P. No.562 of 1986, the first question in T.C.P. No 563 of 1986 and the only question in T.C.P. No.14 of 1988 arc concerned, we are of the view that the Tribunal was right in the view it took. Irrespective of whether the services were rendered by the employees to the assessee or to the erstwhile private transport companies, the liability of the assessee to pay gratuity was undoubtedly related to the number of years of ser-ice put in by the employees and the gratuity payment had also been made by the assessee only in relation to an approved gratuity fund. Under those circumstances it is not open to the Revenue to claim that the payment of gratuity so made to an approved gratuity fund is not in accordance with the provisions of the Income-tax Act, 1961. Further, under the provisions of the Tamil Nadu Fleet Operators (Stage Carriage Acquisition) Act, the liability of the erstwhile employers to pay gratuity to the employees has been taken over p by the assessee-Corporation on the vesting of the private transport undertakings in it and the workers have been continued in service without any break, thus preserving intact their right to receive gratuity based on the total number of years of service put in by them under the erstwhile private transport companies as well as the Corporation. There is, therefore, no question of the liability for the payment of gratuity using bifurcated as referable to the rendering of service by the employees under the private transport companies prior to the taking over and under the assessee-Corporation after the take over. Under the terms of the take over, the assessee is bound to pay gratuity payable by the predecessor private transport companies and under those circumstances, the claim of the Department that there should be bifurcation and the entire payment cannot be allowed, was rightly negatived by the Tribunal. We are, therefore, of the view that the common question for the assessment years 1977-78 and 1978-79 and the first question for the assessment year 1979-80 in T.C.P.No.561 of 1986, the only question in T.C.P. No.562 of 1980, the first question in T.C.P. No. 563 of 1986 and the only question in T.C.P. No. 14 of 1988 cannot be stated to be referable questions of law. Consequently, those questions need not be referred.

However, with reference to the second question for the assessment year 1979-80 in T.C.P. No.561 of 1980 as well as the second question in T.C.P. No.563 of 1986, we find that we have already directed a reference by an order dated December 19, 1983. Indeed, it is also seen that the Tribunal in R.A. 8 Nos.532 and 533 of 1981, by order dated September 24, 1984, has referred a similar question for the opinion of this Court. We, therefore, direct the Tribunal to state a case referring the second question for the assessment year 1979 -80 in T.C.P. Nos. 561 and 563 of -1986.

The petitions, in other respects, will stand dismissed. No cost.

M.B.A./1538/TOrder accordingly.