1981 (7) TMI 29 - HC - Income Tax

Summary

Issues:
- Deduction of provision for gratuity under the West Bengal Payment of Compulsory Gratuity Act, 1971 in computing business profits for the assessment year 1972-73.

Detailed Analysis:
The case involved the question of whether the assessee was entitled to deduct the provision for gratuity, ascertained on actuarial principles, in computing business profits for the assessment year 1972-73. The assessee had made a provision for gratuity to its employees under the West Bengal Payment of Compulsory Gratuity Act, 1971, amounting to Rs. 2,95,494. The Income Tax Officer (ITO) initially rejected the claim as the assessee failed to produce an actuarial computation of the liability. The Appellate Assistant Commissioner (AAC) affirmed the ITO's decision, stating that the provision was not allowable as the Act did not compel the provision for gratuity and the liability was contingent. The assessee then appealed to the Tribunal, arguing that the liability was existing, not contingent, and relied on a Bombay High Court decision supporting the allowance of such provisions if ascertained on actuarial principles.

The Tribunal considered the case law and held that the provision for gratuity under the West Bengal Payment of Compulsory Gratuity Act, 1971, if ascertained on actuarial principles, was an allowable expenditure. The Tribunal noted that the decision in a similar case had been followed by the Calcutta High Court. The Tribunal directed the matter back to the ITO for verification of the actuarial certificate and to allow the deduction based on the certificate. The High Court concurred with the Tribunal's decision, citing a previous judgment and distinguishing a subsequent case concerning a different assessment year. The Court held that the assessee was entitled to the deduction of the provision for gratuity as per actuarial principles, affirming the Tribunal's decision in favor of the assessee.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of actuarial principles in determining the allowance of provisions for gratuity under the West Bengal Payment of Compulsory Gratuity Act, 1971. The Court applied relevant case law to support the assessee's claim and directed the ITO to verify the actuarial certificate for the deduction. The judgment favored the assessee's position, allowing the deduction of the provision for gratuity in computing business profits for the assessment year 1972-73.