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Issues involved: Assessment of liability for gratuity and unabsorbed depreciation, rejection of claim for refund of advance tax, interpretation of provisions u/s 141A and 40A of the Income-tax Act, 1961.
Assessment of liability for gratuity: The petitioner, a public limited company, filed an estimate disclosing income of Rs. 10,000 for the assessment year 1973-74, later revised to Rs. 63,12,880. Claimed deductions included liability for gratuity and unabsorbed depreciation. The Income-tax Officer rejected the claim for refund of advance tax, stating the estimated gratuity liability was not admissible as no provision was made in the accounts. However, the court held that under the mercantile system of accounting, the claim based on actuarial valuation is allowable, citing precedent. The Income-tax Officer's reliance on departmental instructions was deemed erroneous, and the actuarial report's absence was not a valid reason for disallowance. Unabsorbed depreciation and development rebate: The Income-tax Officer disallowed the claim for set-off of unabsorbed depreciation and development rebate, citing incomplete assessments for relevant years. The court did not provide a final opinion on this issue, as the allowance of the gratuity claim would result in a loss return and full refund of advance tax. The Officer's view on this matter was considered erroneous. Interpretation of provisions u/s 40A: The respondents attempted to justify the order based on an amendment to section 40A, which restricts deductions for gratuity provisions. However, an exception applied to the assessment year in question, allowing such provisions if certain conditions are met in the future. The court found no legal barrier in this case under the amended section 40A. Conclusion: The petition was allowed, and the Income-tax Officer's order was quashed. A fresh order was directed to be passed in accordance with the law. The petitioner was awarded costs.
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