COMMISSIONER OF INCOME-TAX VS PULLICAR MILLS LTD.
2001 P T D 1739
[241 I T R 211]
[Madras High Court (India)]
Before R. Jayasimha Babu and Mrs. A Subbulakshmy, JJ
COMMISSIONER OF INCOME‑TAX
Versus
PULLICAR MILLS LTD
Tax Case No.58 of 1982 (Reference No.28 of 1982), decided on 17/08/1998.
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 iii 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.
C.V. Rajan for the Commissioner.
S.A. Balasubramanian for the Assessee.
JUDGMENT
R. JAYASIMHA BABU, J.‑‑‑The question referred to us at the instance of the Revenue is as to whether the Tribunal was right in holding that the assessee's claim for deduction of a total sum of Rs.61,228 on account of gratuity to the employees for the assessment year 1974‑75 was acceptable.
We have been taken through the order of the Tribunal. The Tribunal has 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 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, that sum had been allowed by the Assessing Officer. The Tribunal has chosen to deduct from the sum of Rs.7,9.1,992 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 has not given any reason for ignoring the figure of Rs.7,85,730 which was undisputed by the amount allowed for the earlier assessment year as a liability based on the actuarial valuation. The finding of the Tribunal is flawed.
It is 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. When the amounts are paid out to the employees at the time of their retirement or termination, the amount so paid is the amount, which had already been provided for in the actuarial valuation at the end of the previous year plus the liability which may have accrued during the current year till the time of retirement or termination. There is 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. No details of the number of employees who retired or the amounts paid to each of them or regarding the amounts up to which the employer's liability for gratuity to those employees had been covered by the provisions during the earlier years are available. There was also no material to show that the actuarial valuation as at the end of the previous year relevant to the assessment year had omitted to take into account the liability which had accrued during the year for gratuity towards employees who have retired during the course of the 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 gratuity to the employees for the assessment year 1974‑75. The question referred to us is answered in favour of the Revenue, and against the assessee.
M.B.A./576/F????????????????????????????????????????????????????????????????????????????????????? Reference answered.