K J FRANCIS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This is an appeal by certificate granted by the High court of Kerala which answered the question referred to it in favour of the Revenue.

(2.) The appellant is an individual. He was carrying on business as its sole proprietor. The accounting year of the appellant was the financial year. On 14/10/1970, the books of account of the appellant were closed and the sole proprietary concern was taken over by a partnership with effect from 15-10- 1970, the appellant being one of the partners. During Accounting Year 1969- 70, relevant to Assessment Year 1970-71, an Ordinance had been issued, known as "the Kerala Industrial Employees' (Payment of Gratuity) Ordinance", which made it obligatory for employers to set aside particular amounts for payment as gratuity to their employees. It is not in dispute thatthe liability in respect of Accounting Year 1969-70, and for the earlier years, did arise in that accounting year, but the appellant chose not to make any entry in his books of account towards the discharge of that liability. In the a following accounting period, i. e. , 1/4/1970 to 14/10/1970, when his proprietorship came to an end, the assessee debited the amount in his books of account and claimed a deduction of the gratuity which was payable to his employees.

(3.) The Income Tax Officer rejected the claim of the appellant on the ground that the amount included liabilities of earlier accounting years, according to him, the liability for that year alone, i. e. Assessment Year 1971-72, could be allowed. The appellant filed an appeal before the appellate Assistant Commissioner who held that a provision in respect of the liability should have been made when the Ordinance was promulgated on 9/12/1969 and the statutory liability should have been claimed as a deduction by the appellant in the first year in which it arose because he followed the mercantile system of accounting. The claim of the appellant was, accordingly, rejected.