1991 (6) TMI 60 - HC - Income Tax

Summary

Issues:
1. Deduction of gratuity provision under section 40A(7)(b)(ii).
2. Weighted deduction of salary expenses under section 35B(1).

Analysis:

Issue 1: Deduction of Gratuity Provision
The assessee, a private limited company engaged in manufacturing and exporting radiators, claimed a deduction for gratuity provision under the Payment of Gratuity Act, 1972, and salary expenses for export development during the assessment year 1973-74. The Income-tax Officer initially disallowed the gratuity provision deduction, citing conditions under section 40A(7)(b)(ii). The Appellate Assistant Commissioner allowed the deduction subject to conditions, and the Tribunal upheld the full deduction as the liability arose only after the enactment of the Gratuity Act. The Tribunal correctly held that the liability to pay gratuity emerged for the first time upon the act's enforcement, justifying the full deduction of Rs. 1,97,472. The conditions under section 40A(7)(b)(ii) were satisfied, entitling the assessee to the deduction.

Issue 2: Weighted Deduction of Salary Expenses
Regarding the claim for weighted deduction of salary expenses under section 35B(1), the Income-tax Officer disallowed the deduction, deeming it under a different clause. The Appellate Assistant Commissioner allowed 50% deduction, but the Tribunal, following a precedent, granted 75% deduction. The Tribunal's decision was supported by a circular acknowledging the precedent's acceptance. The High Court affirmed the Tribunal's decision, emphasizing that the Tribunal's factual findings on the percentage of expenses falling under the applicable clause were valid. The circular from the income-tax authorities further validated the Tribunal's decision, indicating no need for interference.

In conclusion, the High Court upheld the Tribunal's decisions on both issues, affirming the full deduction of gratuity provision and the 75% weighted deduction of salary expenses. The court answered all questions in favor of the assessee, emphasizing the legality and correctness of the Tribunal's decisions.