1979 (4) TMI 91 - AT - Income Tax

Summary

Issues:
1. Deduction claim of gratuity for the assessment year 1975-76.
2. Treatment of tiffin expenses as entertainment expenditure.

Analysis:

Issue 1: Deduction claim of gratuity
The appeal by the assessee pertained to the deduction claimed for gratuity for the assessment year 1975-76. The company claimed a deduction of Rs. 29,56,274 under the head 'gratuity' for the year, with a liability amounting to Rs. 49,56,274 as of 31st Dec., 1974. The Income Tax Officer (ITO) allowed a deduction of Rs. 6,42,171 based on his calculations. The Assessing Officer considered the provision for gratuity made in the previous year as not admissible for the current year under section 40A(7)(b)(i) of the Income Tax Act. The assessee appealed to the Appellate Assistant Commissioner (AAC), who upheld the ITO's decision. The assessee contended that the provisions of section 40A(7)(b)(i) and (b)(ii) should be applied, as an approved gratuity fund was created and contributions were made accordingly. The Appellate Tribunal held that the case should be remitted back to the ITO for fresh disposal, emphasizing the need to consider provisions made in the accounts for the current year and the earlier years separately under section 40A(7)(b)(ii).

Issue 2: Treatment of tiffin expenses
The second contention related to tiffin expenses amounting to Rs. 2,968, which were disallowed by the authorities as entertainment expenditure. The Appellate Tribunal noted that these expenses were for tea and coffee of a customary nature for clients, not entertainment, and therefore allowed the claim of the assessee in this regard. The Tribunal set aside the assessment and directed the ITO to re-examine the gratuity claim while upholding the treatment of other items as per the original order, as amended by the AAC and the Tribunal. The appeal was partly allowed, with specific instructions for the reassessment limited to the gratuity claim.

In conclusion, the judgment addressed the issues of gratuity deduction and the treatment of tiffin expenses, providing detailed analysis and directions for the reassessment of the gratuity claim while allowing the tiffin expenses claim.