COMMISSIONER OF INCOME TAX Vs. METTUR SPINNING MILLS

JUDGEMENT

(1.) TWO questions are referred to us by the Income-tax Appellate Tribunal, Madras, in this case. The first question is a follows:

(2.) THE facts bearing on this question may be briefly stated. THE assessee-firm was carrying on business in the manufacture and sale of yarn. It had a number of workers on its pay-roll. THEre was a settlement between the workers and the assessee under which a gratuity scheme was to be formulated and then implemented. In accordance with that gratuity scheme, the assessee made a provision of Rs. 5,80,892 in its account year ended July 31, 1970. This amount was claimed as an admissible deduction in the computation of the assessee's profits for the purpose of assessment to income-tax for the year 1971-72. THE ITO held that only some part of the provision, which, according to him, was referable to the account year, could be allowed as a deduction against profits; but the rest of the amount should be disallowed. In this manner, he allowed Rs. 71,231 and disallowed Rs. 9,05,661. On appeal, the Tribunal granted a deduction to the assessee in respect of the balance of the amount of Rs. 5,09,661 as well. It was common ground before the Tribunal that the gratuity liability, for which provision was made in the aggregate sum of Rs. 5,80,892, was worked out by actuarial valuation. On this basis, the Tribunal held that the provision made was a definite obligation of the business, as such, it was a permissible outgoing or deduction in the computation of the assessee's business profits.

(3.) HOWEVER, there will be no order as to costs.