COMMISSIONER OF INCOME TAX Vs. JANANAMANDAL LIMITED

JUDGEMENT

(1.) This is a reference under Section 256(1) of the Income-tax Act, 1961. The following five questions have been referred for the opinion of this court:

(2.) It is agreed between counsel for the parties that the first two questions are to be answered in favour of the assessee in view of an earlier decision of this court between the same parties in I. T. R. No. 765 of 1975 connected with I. T. R. No. 432 of 1976 decided on September 17, 1982 (ITAT v. Jananmandal Ltd. [19831 143 ITR 228). Accordingly, the first two questions are answered in the affirmative, in favour of the assessee and against the Department.

(3.) The third question is about the allowance of gratuity paid to the employees. The assessee claimed that it was following the cash system of accounting and, therefore, the gratuity paid during the previous year relevant to the assessment year in dispute was a permissible deduction. This claim was denied by the Income-tax Officer on the finding that the disputed amount related to gratuity of the immediately preceding year and that the system of accounting followed by the assessee was not cash but hybrid, and so far as gratuity was concerned, the system was mercantile. On appeal filed by the assessee, the view taken by the Income-tax Officer was not upheld. The Income-tax Appellate Tribunal has found that even in the past, the assessee had always claimed the expenditure relating to gratuity as and when paid, i.e., on cash basis. On this finding, the amount of gratuity claimed by the assessee was allowed by the Tribunal.