COMMISSIONER OF INCOME TAX Vs. HECKET ENGG CO

JUDGEMENT

(1.) AT the instance of the CIT, Bihar, Patna, the Patna Bench of the Tribunal has referred the under - mentioned question for opinion of this Court.

(2.) ON the statement of the case, as made by the Tribunal the question requires to be reframed, but before doing so, the facts may be stated. The assessee is a company, engaged in the business of recovery of iron contents from slag's deposit of the steel plants at Jamshedpur, Rourkela and Burnpur, with its head office at Jamshedpur. It method of accounting is mercantile. For the assessment year 1973 -74, for which the accounting is mercantile. For the asst. year 1973 -74, for which the accounting period is the calendar year ending on the 31st Dec., 1972, the assessee made a provision of Rs. 821,978/ - towards payment of retirement gratuity. This provision admittedly had been made in accordance with the provisions of Payment of Gratuity (Act No. 39 of 1972) which came into force, during the relevant accounting year, from the 16th Sept., 1972 (hereinafter referred to as the Gratuity Act). The assessee claimed it as a deduction in computing its profits from business. The total amount claimed towards gratuity was a sum of Rs. 2,92,160/ - which included the aforesaid sum of Rs. 81,978/ -. The ITO allowed the claim to the extent of Rs. 2,01,929/ -, but disallowed the claim of Rs, 81,978/ - on the ground that it was a mere provision under the Gratuity Act. According to the ITO, only such contribution to the gratuity fund was allowable as deduction which had been made towards an approved gratuity fund. On appeal to the AAC the submission made by the assessee was that the said sum of Rs. 81,978/ -, being an ascertained liability under the Gratuity Act, was deductible against the profits of the year. The AAC accepted the assessee's claim. Holding that the disputed amount was an additional liability to the assessee. The Department then appealed to the Tribunal. The Tribunal dismissed the Department's appeal, observing -

(3.) LEARNED Standing Counsel for the Department submitted that the admissibility of an amount set apart towards gratuity is dependent upon the fulfilment of the conditions laid under S. 40A (7) of the INCOME TAX ACT, 1961. The claim for deduction of an amount set apart towards gratuity has, therefore, to be examined in the light of the provisions contained in the aforesaid provisions of the IT Act. In the instant case, it is submitted that although the said amount of Rs. 81,978/ - had been set apart towards gratuity account, it was merely a contingent liability and not a pressing obligation. Further, the setting apart of the said sum did not conform to the requirements of S. 40A (7)(b) (ii) of the INCOME TAX ACT, inasmuch as it was over and above the admissible limit.