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Issues involved: Whether the provision of pension of Rs. 1,31,279 represented an accrued liability and was an admissible deduction in computing the profits of the assessee-company for the assessment year 1972-73.
Summary: The case involved a foreign company carrying on insurance business in India, which was taken over by the Government of India with all its assets and liabilities. The dispute arose regarding the deduction of Rs. 1,31,279 in computing the total income for the assessment year 1972-73, which was determined as a liability for pension to employees based on actuarial valuation. The Assessing Officer disallowed this deduction, considering it as a provision and not an actual payment made. The company appealed to the Appellate Authority Commissioner (AAC), who upheld the disallowance based on past practice. The company then appealed to the Tribunal, which allowed the deduction, stating that there was a definite liability to pensioners which had already arisen. The High Court, in its judgment, referred to the principles laid down in previous cases regarding provisions for gratuity based on actuarial valuation. It cited a case where a provision for gratuity was allowed as a revenue deduction as it was made on an actuarial basis and in compliance with statutory provisions. The Court also mentioned a decision by the Madras High Court, stating that if a provision for gratuity is based on a legal and scientific basis, the assessee is entitled to the deduction. In the present case, as the provision was for retired employees and actuarially computed, the Court found the Tribunal's decision to allow the deduction to be correct. Ultimately, the Court answered the question in the affirmative and in favor of the assessee, stating that the provision for pension was an allowable deduction in computing the true profit of the company. Each party was directed to pay its own costs. Judges: SABYASACHI MUKHERJEE, SUDHINDRA MOHAN GUHA
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