COMMISSIONER OF WEALTH TAX Vs. RAMASWAMI S

JUDGEMENT

(1.) THIS judgment will dispose of all these tax cases since they raise an identical question of law on identical facts.

(2.) SHRI Ramalinga Mills Private Ltd. and Aruppukkottai SHRI Jayavilas Private Ltd. are two private limited companies in which all the assessees who figure in these references are holding equity shares. Some of the assessees are partners in "SHRI Jayajothi and Company", which is a partnership firm. Each of these concern in carrying on business with the aid of employees who have had a number of years of service to their credit. The management in each of these concerns took a decision to create a gratuity fund in terms of the scheme in Pt. C of Sch. IV to the I.T. Act, 1961. In each of these concerns a gratuity fund was established with effect from January 1, 1973. They also applied to the Commissioner for the approval of the gratuity funds so created. The approval by the Commissioner was granted on March 9, 1976, but with effect from January 1, 1973.

(3.) THE question which had arisen in these cases was whether the initial contribution by the three concerns to the respective gratuity funds as well as the subsequent years' annual contributions can be regarded as contingent liabilities and hence to be disregarded in the compultaion of the net worth of these concerns or whether they should be held to be "other liabilities" which have got to be deducted from the assets without question, for the purpose of computing the net worth of these concerns as on the relevant valuation dates. THE WTO did not regard the liabilities towards gratuity as a present liability, but as a contingent liability, and in that view disallowed the amounts in the computation of the net worth of these concerns.