CONTROLLER OF ESTATE DUTY Vs. LAKSHMIKANTHAMMAL DECD

JUDGEMENT

(1.) AN interesting question of law on the question of deduction of gratuity liability in the computation of principal value of the estate arises on the facts of the case. The Tribunal in pursuance of the direction of this Court under s. 64(3) of the ED Act, 1953, in TCP No. 319 of 1977 dt. 3rd February, 1978 has stated a case and referred the following question of law for our consideration.

(2.) THE short facts leading to the present tax case reference are as under :

(3.) WE have carefully considered the submissions made by Mr. C. V. Rajan, learned counsel for the Revenue and perused entire records of the case. There is no dispute by the Revenue that if an employer makes a provision for gratuity for all employees employed by the employer on the scientific or actuarial basis, such a provision for gratuity can be regarded as a present, direct and immediate liability of the employer for the reason that the provision would represent the present discounted value of the employer's commitment as a whole to pay his workmen gratuity as and when it becomes payable. The above provision of law is well settled by a decision of this Court in CWT vs. S. Ram (1983) 147 ITR 278 (Mad) : TC 63R.462, wherein this Court held that for the estate duty purposes the provision of gratuity made on scientific basis is an allowable deduction in computing the principal value of the estate. This Court also held that the provision made on scientific or actuarial valuation should be regarded as a 'here and now' liability and it cannot be regarded as a contingent liability. The House of Lords in Owen vs. Southern Rly. of Peru Ltd. 36 Tax. Cases 602 held that a deduction should be allowed in respect of the liability to pay retiring benefits or deferred remuneration to employees in the future, provided the liability is accurately estimated i.e., upon an actuarial valuation. Lord MacDermott in that case has held, "as a general proposition it is, I think, right to say that in computing his taxable profits for a particular year, a trader who is under a definite obligation to pay his employees for their services in that year an immediate payment and also a future payment in some subsequent year, may properly deduct not only the immediate payment but the present value of the future payment provided such present value can be satisfactorily determined or fairly estimated". The same decision also establishes the proposition that the total or aggregate obligation to pay gratuity or other retiring benefits for the services rendered by all the employees in a year cannot be regarded as a mere contingent liability merely because some of the employees may forfeit their rights to claim gratuity.