Income-tax---

----Business expenditure---Gratuity---Liability to pay gratuity for previous year and earlier years on coming into force of the Indian Payment of Gratuity Act, 1972---Deductible.

Held, that it was only on the coming into force of the Payment of Gratuity Act, 1972, that the assessee became liable to pay Rs.25,47,829 by way of gratuity to its employees. Hence, the Tribunal was right in holding that the assessee became entitled to the deduction of the entire amount of Rs.25,47,829 even though, on actuarial basis, the assessee's liability towards payment of gratuity during the previous year under consideration was only Rs.8,47,815.

CIT v. Gaskets and Radiators (Pvt.) Ltd. (1991) 192 ITR 509 and (1991) 79 FJR 503 (Guj.) fol.

B.J. Shelat with R.P. Bhatt for the Commissioner.

D.A. Mehta and R.K. Patel for K.C. Patel for the Assessee.

JUDGMENT

G.T. NANAVATI, J.---At the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following question to this Court under section 256(1) of the Income Tax Act, 1961:

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee was entitled to deduction of the entire amount of Rs.25,47,829 even though on actuarial basis the assessee's liability towards payment of gratuity fund arose during the previous year under consideration only by Rs.8,47,851?"

The concerned assessment year is 1973-74, the previous year being the calendar year 1972. The assessee made a provision of Rs.25,47,829, that being his liability towards payment of gratuity till the end of that year and it claimed a deduction of the entire amount. The stand of the Revenue was that it was entitled to deduction of Rs.8,47,815 being the liability which arose for that year on actuarial basis.

A similar question had arisen in the case of CIT v. Gaskets and Radiators (Pvt.) Ltd. (1991)192 1TR 509 (Guj.) In that case, it was held that only after the Payment of Gratuity Act came into force, the liability of the employer to pay gratuity to its employees arose. Thus, it was only on the coming into force of the Payment of Gratuity Act that the assessee became liable to pay Rs.25,47,829 by way of gratuity to its employees. Therefore, following the said decision, it will have to be held that the Tribunal was right in holding that the assessee became entitled to the deduction of the entire amount of Rs.25,47,829 even though, on actuarial basis, the assessee's liability f towards payment of gratuity during the previous year under consideration was only Rs.8,47,815. We, therefore, answer the question in the affirmative, i.e. against the Revenue and in favour of the assessee. This reference is disposed of accordingly with no orders as to costs.

M.B.A./205/T.F.Reference disposed of.