FOURTH INCOME-TAX OFFICER Vs. CANARA FINANCES

JUDGEMENT

(1.) The assessee made a provision of gratuity amounting to Rs. 10,115 and debited to the profit and loss account. It was claimed as a deduction. The ITO found that the amount is not due in respect of any retired employees and it has not become payable. It is only a provision made in respect of existing employees who retire later and are eligible for gratuity. Further, no particular gratuity fund as per rules has also been formed and credited this amount therein. Thus, he disallowed the claim of the assessee.

(2.) On appeal, the Commissioner (Appeals) held that the sum of Rs. 10,115 provided for by the assessee is an allowable expenditure. Thus, he allowed the claim.

(3.) Against the same the revenue has preferred his appeal. The leaned departmental representative strongly urged that no gratuity fund as per rules has been formed by the assessee. There is no actuarial valuation. There is no liability for payment of any gratuity this year. Thus, the claim is not allowable as deduction. It was also submitted that section 40A (7) of the Income-tax Act, 1961, (the Act), applies and the conditions laid down therein are not satisfied. The learned counsel for the assessee strongly supported the order of the Commissioner (Appeals). He urged that the liability for gratuity is allowable as deduction under section 36 as well as under section 37 of the Act.