PARRY & CO .LTD. VS COMMISSIONER OF INCOME-TAX, 2000 PTD-MADRAS-HIGH-COURT-INDIA 3657 (1998)

Income-tax---

----Reference---Businessexpenditure--Gratuity---Cumulative gratuity liability of Rs.41,86,901 claimed in assessment year 1975-76---Gratuity contribution of Rs.25,68,951 already allowed for earlier assessment years 1971-72 and 1972-73---ITO reducing deduction of gratuity liability for assessment year 1975-76 by amount already allowed in earlier years---References against allowance of gratuity for earlier years pending---Appellate Tribunal holding that if High Court does not accept view of Tribunal for earlier years then set off made by Tribunal for 1975-76 to be deleted---Reference answered against assessee---Indian Income Tax Act, 1961, Ss.40A(7) & 256.

The assessee for the assessment year 1975-76 made a claim for deduction of a sum of Rs.41,86,901 being the cumulative gratuity liability actually determined for setting up the gratuity fund., in terms of. section 40A(7) of the Income Tax Act, 1961. The Income-tax Officer originally allowed the entire claim as deduction. When the Income-tax Officer subsequently reopened the earlier assessment proceedings under section 147(b) of the Act, he found that the gratuity contribution was already allowed as deduction for the earlier assessment years, totalling in all a sum of Rs.25,68;951 but the same had not been set off against the contribution allowed to be deducted in determining the total income of the assessee for the assessment year 1975-76. He, therefore, reduced the deduction already allowed. The Commissioner of Income-tax (Appeals) upheld the view of the Income-tax Officer which was confirmed by the Appellate Tribunal. The case of the assessee before the Appellate Tribunal was that the deductions allowed for the earlier assessment years had not become final as, at the instance of the Revenue, references were pending in the High Court. Op a reference:

Held, that the Appellate Tribunal had sufficiently safeguarded the interest of the assessee by making the position clear that in case the High Court did not accept the view of the Appellate Tribunal for the two years 1971-72 and 1972-73 the set off made by the Appellate Tribunal should be deleted for the assessment year 1975-76. Since the interest of the assessee had been sufficiently safeguarded by the order of the Tribunal the reference was purely academic in nature and the questions raised were liable to be answered against the assessee.

P.P.S. Janarthana Raja for the Assessee.

C.V. Rajan for the Commissioner:

JUDGMENT

N.V. BALASUBRAMANIAN, J.--At the instance of the assessee relating to. the assessment of its income for the assessment year 1975-76, the Income-tax Appellate Tribunal has stated a case and referred the following two questions of law for our opinion under section 256(2) of the Income Tax Act, 1961: '

"(1) Whether, on the facts and circumstances- of the case, the Tribunal was right in holding that sum of Rs.41,86,901 is not. liable to deduction?

(2) Whether the Tribunal was right in holding that the claim made in the Income-tax adjustment statement amounts to a provision for the purpose of section 40A(7) of the Act?"

The assessment year with which we are concerned is 1975-76: The assessee for the said assessment year made a claim for deduction of a sum of Rs.41,86,901 being the cumulative gratuity ,liability actually determined for setting up the gratuity fund in terms of section 40A(7) of the Act. The Income-tax Officer originally allowed the entire claim as deduction. When the Income-tax Officer subsequently reopened the earlier assessment proceedings under section 147 of the Act, he found that the gratuity contribution was already allowed as deduction for the earlier assessment years, totalling in all a sum of Rs.25,68,951 but the same has not been set off against the contribution allowed to be deducted in determining the total income of the assesses for the assessment year 1975-76. He, therefore, reduced the deduction already allowed by the amount already allowed as a deduction. The Commissioner of Income-tax (Appeals) upheld the view of the Income-tax Officer which was confirmed by the Appellate Tribunal. The case of the assessee before the Appellate Tribunal was that the deductions allowed for the -earlier assessment years have not become final as at the instance of the Revenue the tax case references were pending on the file, of this Court. The Tribunal noticed that for the two earlier 4ssessment years 1971-72 and 1972-73 references were pending on the date of the passing of the order of the Appellate Tribunal. In so far as the assessment years 1973-74 and 1974-75 are 'concerned, the Tribunal noticed that the same was disallowed by the Income-tax Officer and the amount had been allowed as a deduction for the assessment year 1975-76. The Tribunal made the following observation to safeguard the interest of the assessee:

"We direct set off now made in respect of-the amount deducted for those years will be deleted in case the High Court reverses the view of the Tribunal in references pending for the earlier assessment years 1971-72 and 1973-74."

The assessee has challenged the order of the Appellate Tribunal to' safeguard its position and the two questions of law set out earlier have been referred to us at the instance of the assessee. On a perusal of the order of the Appellate Tribunal, we find that the Tribunal has sufficiently safeguarded the interest of the assessee by making in the position clear that in case this Court did not accept the view of the Appellate Tribunal for the two years 1971-72, and 1972-73, the set off allowed by the Appellate Tribunal should be deleted for the assessment year 1975-76. We think the above direction of the Appellate Tribunal would be sufficient to safeguard the interest of the assessee in the event of the reversal of the view of the Appellate Tribunal regarding the deduction of the gratuity liability for the two earlier assessment years 1971-72 and 1972-73 by this Court. Since the interest of the assessee has been sufficiently safeguarded by the order of the Appellate Tribunal, we find the reference is purely academic in nature and we are of the view that the questions raised should be answered against the assessee. Accordingly, we answer both the questions of law in the affirmative and against the assessee. Since the Appellate Tribunal has safeguarded the position of the assessee in case of reversal of its earlier order if the assessee is unable to get the deduction in the earlier two assessment years, there 'is no need to give any further direction except to state that the direction of the Appellate Tribunal would observant the contingency contemplated in the directions of the Appellate Tribunal. However, in the circumstances, there will be no order as to costs.

M.B.A./70/FC Order accordingly.