COMMISSIONER OF INCOME TAX Vs. RAVINDRANATHAN NAIR K

JUDGEMENT

(1.) AT the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following questions of law in the two connected referred cases, for the decision of this court :

(2.) I. T. R. No. 527 of 1965 :

(3.) WE heard counsel for the Revenue, Mr. P. K. R, Menon, as also counsel for the respondent (assessee), Mr. P. Balachandran. The respondent (assessee) is a cashew dealer. For the year 1976-77, he made a provision of Rs. 1,75,996 for payment to the approved gratuity fund. Actually he paid Rs. 1,07,596 under the L. I. C. (Group Gratuity Scheme). The Income-tax Officer held that the assessee is entitled to 8 1/3 per cent. of the salary paid to the employees and holding that the salary paid was Rs. 11,87,074 ; the 8 1/3 per cent. portion was worked out at Rs. 98,923. In other words, the Income-tax Officer made a disallowance of Rs. 8,673. In the appeal, the Commissioner of Income tax (Appeals) sustained this disallowance. He held that the claim made by the assessee exceeded the limit specified in Rule 103 of the Income-tax Rules. In the second appeal filed before the Tribunal, the assessee contended that, due to the reduction in the number of working days on account of the shortage of raw cashewnuts, the proportionate contribution had increased and the provisions having been made on actuarial valuation, the disallowance made is to be deleted. Reliance was placed by the Revenue on Rule 103 of the Income-tax Rules. Even so, the Appellate Tribunal held that the full premium has to be paid even if the employee did not work throughout the year due to loss of working days consequent upon the shortage of raw materials and, in this case, the assessee has constituted a gratuity fund which has been approved by the Commissioner of Income-tax, and the contribution has been made in accordance with the scheme. So, the Tribunal held that any contribution made in the approved manner is allowable, so long as the approval given by the Commissioner of Income-tax stands. It is against this decision that the first question for the assessment year 1976-77 has been referred by the Appellate Tribunal for the decision of this court.