1980 (10) TMI 51 - HC - Income Tax

Summary

Issues involved:
The judgment addresses three main issues:
1. Allowability of expenditure on provident fund contribution u/s 37 of the Income-tax Act, 1961.
2. Deduction of gratuity payments based on twelve months salary last drawn u/s 37 of the Income-tax Act, 1961.
3. Disallowance of the entire payment of gratuity and the competence of the Tribunal to refer the question.

Issue 1:
The case involved a dispute over the deduction of provident fund contribution made before the fund's recognition. The Tribunal allowed the deduction under section 37 of the Income-tax Act, 1961, based on the concept of commercial expediency. The High Court upheld the Tribunal's decision, citing relevant precedents and the principle that expenditure incurred for business purposes, even voluntarily, can be claimed as a deduction under section 37.

Issue 2:
Regarding the deduction of gratuity payments, the Tribunal considered only the payment equivalent to twelve months salary last drawn as reasonable. The High Court supported this decision, emphasizing that as long as a reasonable amount is paid as gratuity, it falls within the scope of section 37 of the Income-tax Act, 1961. The judgment referenced the Supreme Court's clarification on business expenditure related to gratuity payments.

Issue 3:
The third issue pertained to the disallowance of the entire gratuity payment by the Tribunal. The High Court declined to answer this question as it deemed the Tribunal's referral of this issue to be incompetent. The judgment highlighted the procedural aspect that only the aggrieved party can seek a reference under the Income-tax Act, and in this case, no such application was made by the assessee.

The High Court answered the first two questions in favor of the assessee, affirming the deductions for provident fund contribution and gratuity payments based on twelve months salary last drawn. However, it declined to address the third question due to procedural irregularities. The Commissioner was directed to pay the costs of the reference to the assessee.