COMMISSIONER OF INCOME TAX Vs. SAJJAN MILLS LIMITED

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the I.T. Act, 1961.

(2.) FACTS as stated by the Income-tax Appellate Tribunal giving rise to the question of law referred by it are as follows. Assessee is a public limited company. Relevant assessment year is 19 73-74 for which the accounting year ended on 31st March, 1973. The assessee-company had entered into agreements with the workers' union for payment of gratuity by the 31st March, 1972. Company's practice was to account for gratuity on cash basis as and when paid. The company had made a provision in its books of account for payment of gratuity to its employees to the extent of Rs. 20,00,000 during the relevant accounting year. With the coming into force of the Payment of Gratuity Act, 1972, w.e.f. 16th September, 1972, a statutory liability was created on the company to pay gratuity to its employees as per the provisions of the said Act. The assessee-company, therefore, arranged for actuarial determination of its liability for gratuity to its employees. Pending the determination of such an actuarial valuation, the assessee had made a provision of Rs. 20,00,000 against the total accruing liability till the date of the preparation of the balance-sheet. At the time of filing the return of income for the assessment year 1973-74, the assessee added back this provision for gratuity amounting to Rs. 20,00,000 and claimed the total liability of Rs. 48,59,431 which was the actuarial determination of liability arising under the Payment of Gratuity Act in the relevant accounting year.

(3.) AT the instance of the Department the following question has been referred to us for decision :