COMMISSIONER OF INCOME TAX Vs. CAMLIN PVT LIMITED

JUDGEMENT

(1.) THE only one question referred to this court at the instance of the Department is :

(2.) THE assessee is a company and the proceedings relate to the assessment year 1972 -73. The assessee claimed a sum of Rs. 43,584 representing provision for gratuity as deduction. Thy claim was disallowed by the Income -tax Officer on two grounds, namely, (i) the gratuity liability pertaining to the year under reference was only Rs. 4,730 and the balance of Rs. 38,854 represented the assessee's liability for earlier period; and (ii) the amount of Rs. 4,730 could also not be allowed as deduction in view of the provisions of section 36(1)(v) of the Income -tax Act. The Appellate Assistant Commissioner and the Tribunal allowed the assessee's claim for deduction mainly relying on the Central Board of Direct Traces Circular No. 47 dated September 21, 1970 [1970] 78 ITR 13, and the Allahabad High Court decision in Madho Mahesh Sugar Mills (P.) Ltd v. CIT [1973] 92 ITR 503. The Department's contention that the Central Board of Direct taxes' Circular [1970] 78 ITR 13. was subsequently withdrawn was not found acceptable by the Tribunal as the circular [1970] 78 ITR 13, was withdrawn after the assessment under reference was completed.

(3.) IN view of the fact that the liability to gratuity accrued in this case on the basis of a scheme framed during the previous year, it has to be held that the assessee's liability as at the end of that year, irrespective of the period involved, is the liability for the year. The assessment year involved being the assessment year 1972 -73, i.e., the year to which the newly inserted provisions of section 40A(7) of the Income -tax Act are not applicable, it is to be further held that liability based on actuarial valuation is allowable as deduction in view of the Allahabad High Court decision in Madho Mahesh Sugar Mills (P.) Ltd.'s case [1973] 92 ITR 503, and this court decision in India United Mills Ltd.'s case [1975] 98 ITR 426.