2003 (1) TMI 40 - HC - Income Tax

1. Whether Tribunal was right in observing that if a proper scheme and rules and regulations existed under which the gratuity was payable to the employees and the latter could enforce the same the gratuity amount of Rs. 1, 34, 689 should be allowed as a permissible deduction in the previous year relevant to the assessment year 1972-73? - 2. Whether Tribunal was correct in holding that the assessee was entitled to the relief claimed under section 80-I in respect of the profits and gains attributable to the limestone production business of the assessee and as such in setting aside the orders of the authorities below and restoring the matter to the file of the Income-tax Officer for determining the profits and gains attributable to the said business and to work out relief to which the assessee would be entitled on the basis of its finding? Both questions are answered in the affirmative i.e. in favour of the assessee and against the Revenue.

Summary

Issues:
1. Deductibility of gratuity provision under Income-tax Act, 1961.
2. Entitlement to relief under section 80-I for profits from limestone production.

Issue 1: Deductibility of Gratuity Provision:
The High Court was tasked with determining whether the provision for gratuity made by the assessee was allowable as a deduction in the assessment year 1972-73. The Assessing Officer disallowed a portion of the gratuity amount claimed by the assessee, contending that it was based solely on a provision without actual contribution to an approved gratuity fund. The Tribunal, relying on past decisions, held that deduction for gratuity provision could be allowed if based on actuarial valuation and remitted the matter to the Assessing Officer for verification of the existence of an approved gratuity scheme and the scientific basis of the claim. The High Court, citing precedents, affirmed the Tribunal's decision, emphasizing that the provision for gratuity could be deductible if supported by an approved fund under an irrevocable trust, especially for the assessment year 1972-73. Consequently, the first issue was decided in favor of the assessee and against the Revenue.

Issue 2: Relief under Section 80-I for Limestone Production:
The second issue revolved around the entitlement of the assessee to claim relief under section 80-I for profits and gains attributable to limestone production, despite being engaged in the cement manufacturing business. The Assessing Officer disallowed the claim under section 80-I for limestone production, arguing that as a cement manufacturer, the assessee could not claim relief for using limestone in its own process. However, the Tribunal disagreed and held that the assessee was entitled to relief under section 80-I for profits from limestone production. The High Court, citing a relevant precedent, upheld the Tribunal's decision, stating that even if limestone was used internally, relief under section 80-I could still be claimed for its production. Consequently, the second issue was decided in favor of the assessee and against the Revenue.

In conclusion, the High Court ruled in favor of the assessee on both issues, affirming the deductibility of the gratuity provision and the entitlement to relief under section 80-I for profits from limestone production. The judgments were based on established legal principles and precedents, ultimately disposing of the reference with no costs incurred.