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Issues Involved:
1. Admissibility of incremental gratuity liability as a deduction for the assessment year 1972-73. 2. Deduction of gratuity liability amounting to Rs. 80,309 paid by the assessee to the purchaser. Issue-wise Detailed Analysis: 1. Admissibility of Incremental Gratuity Liability as a Deduction: The first issue concerns whether the incremental gratuity liability payable to the employees was an admissible deduction for the assessment year 1972-73. The Tribunal had allowed the deduction of the incremental gratuity liability, which was contested by the Revenue on the grounds that it was a contingent liability. The court referred to the Bombay High Court's decision in Tata Iron & Steel Company Limited v. Bapat [1975] 101 ITR 292, which held that the provision for gratuity made on an actuarial basis would be an admissible deduction. Additionally, the court cited its own decision in CIT v. Andhra Prabha P. Ltd. [1980] 123 ITR 760, which stated that the liability to pay gratuity is not contingent if calculated scientifically and actuarially each year. The Supreme Court's decision in Vazir Sultan's case [1981] 132 ITR 559 also supported this view. Consequently, the court answered the first question in the affirmative and against the Revenue, affirming that the incremental gratuity liability was an admissible deduction. 2. Deduction of Gratuity Liability Amounting to Rs. 80,309: The second issue revolves around the deduction of Rs. 80,309 paid by the assessee to the purchaser to discharge the assessee's gratuity liability for the employees transferred to the purchaser. The Tribunal allowed this deduction, subject to verification of the figures. The Revenue contended that this payment was not an actual discharge of liability to the employees but rather a contingent liability. The court analyzed the terms of the agreement, noting that the purchaser took over the employees with continuity of service and all accrued monetary benefits, including gratuity. The court opined that the payment made to the purchaser for discharging the assessee's gratuity liability should be considered a payment towards accrued liability and thus deductible. The court disagreed with the Bombay High Court's decision in CIT v. W. T. Suren & Co. Ltd. [1982] 138 ITR 91, which held that such payments were not allowable as business expenditure. The court emphasized that the liability to pay gratuity, calculated on an actuarial basis, is not contingent but accrued. The court also referenced the Supreme Court's decision in CIT v. Mysore Spinning & Manufacturing Co. Ltd. [1970] 78 ITR 4, which allowed deductions for payments made to discharge accrued liabilities. Additionally, the court cited its own decisions in CIT v. Sri Ranilakshmi Ginning, Spinning & Weaving Mills (P.) Ltd. [1981] 132 ITR 360 and CIT v. Sri Venkateswara Bank Ltd. [1979] 120 ITR 207, which supported the deductibility of such payments under Section 37 of the Act. The court concluded that the payment of Rs. 80,309 to the purchaser for discharging the assessee's gratuity liability should be allowed as a deduction. The court answered the second question in the affirmative and against the Revenue, with the direction to verify the actual gratuity liability figures. The assessee was awarded costs from the Revenue, with counsel's fee set at Rs. 500.
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