1984 (7) TMI 24 - HC - Income Tax

Summary

Issues:
1. Deduction of provision made for gratuity in computing income for assessment year 1971-72.
2. Claiming liability for gratuity under Kerala Industrial Employees' Payment of Gratuity Act, 1970.
3. Treatment of sum wrongly allowed by Income-tax Officer towards gratuity for assessment year 1971-72.
4. Entitlement to deduction towards liability for gratuity for earlier years and remanding the case to the Income-tax Officer.

Analysis:

Issue 1:
The court referred to a previous decision in CIT v. Kerala Nut Food Co. where it was held that the provision made by the assessee for gratuity is to be allowed as a deduction in computing income for the assessment year 1971-72. The court answered this question in the affirmative, in favor of the assessee and against the Revenue.

Issue 2:
Regarding the liability for gratuity under the Kerala Industrial Employees' Payment of Gratuity Act, 1970, the court cited previous judgments to establish that deductions are permissible for the liability arising during the relevant accounting year. The liability should be valued based on actuarial principles. The court emphasized that the liability accrued in an earlier year cannot be considered for computing income in the subsequent year.

Issue 3:
The court addressed the treatment of a sum wrongly allowed by the Income-tax Officer towards gratuity for the assessment year 1971-72. It was held that the sum of Rs. 12,632 cannot be treated as wrongly allowed, and therefore, the assessment cannot be enhanced.

Issue 4:
The court discussed the entitlement to deduction towards liability for gratuity not only for the current year but also for earlier years. It was clarified that if the liability arose for the first time under the statute, deductions could be claimed for the accounting year when the statute was enacted as well as for earlier years. The court recast the question related to remitting the case to the Income-tax Officer and answered it in the negative, in favor of the Revenue and against the assessee. The court directed the parties to bear their respective costs in the tax referred cases.