1974 (6) TMI 28 - HC - Income Tax

Issues Involved:
1. Deductibility of the company's initial contribution to the gratuity fund under section 10 of the Income-tax Act for the assessment years 1952-53 or 1953-54.
2. Deductibility of the company's yearly contribution to the gratuity fund for the year 1951 under section 10 of the Income-tax Act for the assessment years 1952-53 or 1953-54.
3. Legality of the Tribunal's refusal to direct the Income-tax Officer to follow the Central Board of Revenue's circular regarding contributions to the gratuity fund for the assessment years 1952-53 and 1953-54.
4. Entitlement of the assessee to a deduction for payments made to the Bombay Hospital Trust in determining business profits for the assessment years 1952-53, 1953-54, and 1954-55.

Detailed Analysis:

1. Deductibility of Initial Contribution to the Gratuity Fund:
The court examined whether the initial contribution of Rs. 19,11,658 to the gratuity fund could be deducted under section 10 of the Income-tax Act for the assessment years 1952-53 or 1953-54. The assessee-company had set apart this amount in 1951 to meet the liability for gratuity as per an industrial court award. The Tribunal initially disallowed this deduction, considering it a capital expenditure and contingent liability. However, the court referred to the Supreme Court's decision in Metal Box Company of India Ltd. v. Their Workmen, which allowed deductions for liabilities accrued but payable in the future, provided they were ascertainable. The court concluded that the initial contribution should be allowed as a deduction for the assessment year 1953-54 as it was actual expenditure incurred by the assessee in that year.

2. Deductibility of Yearly Contribution to the Gratuity Fund:
The court also considered the yearly contribution of Rs. 2,65,701 for the year 1951. The Tribunal had disallowed this deduction, viewing it as a provision rather than an actual liability. However, the court, relying on the same principles as in the first issue, determined that if the liability was properly ascertainable, it could be deducted. Since the assessee had actually paid Rs. 21,50,466 to the trustees of the gratuity fund in 1952, this amount was considered actual expenditure for the assessment year 1953-54. Thus, the yearly contribution was allowed as a deduction for the assessment year 1953-54.

3. Tribunal's Refusal to Follow Central Board of Revenue's Circular:
Given the court's answers to the first two questions, the third question became unnecessary to consider. The court did not delve into whether the Tribunal's refusal to direct the Income-tax Officer to follow the Central Board of Revenue's circular was in accordance with the law.

4. Deductibility of Payments to the Bombay Hospital Trust:
The court examined whether payments made to the Bombay Hospital Trust could be deducted in determining the business profits for the assessment years 1952-53, 1953-54, and 1954-55. The Tribunal had disallowed these deductions, viewing them as charitable contributions rather than business expenses. However, the court found that the payments were made under an arrangement for providing medical facilities to the assessee's clerical staff, which would otherwise have been an expense borne by the company. The court noted that the assessee had sent 100 to 125 employees to the hospital monthly, and the payments were related to the company's turnover, not profits, indicating a business purpose rather than charity. Consequently, the court concluded that the payments were wholly and exclusively laid out for the purpose of the business and allowed the deductions.

Conclusion:
The court allowed the deductions for the initial and yearly contributions to the gratuity fund for the assessment year 1953-54 and the payments made to the Bombay Hospital Trust for the relevant assessment years. The revenue was directed to pay the costs of the reference.

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