9911796707
TMI Blog1983 (5) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... d without prejudice, alternatively, to the above ground, deduction ought to have been allowed at Rs. 36,202 and Rs. 30,757 representing gratuity and retrenchment allowance respectively". 2. The relevant facts are that there was a firm in the name of M/s R.S. Madho Ram Sons which derived income from commission from M/s Dhariwal woollen Mills M/s Kanpur Woollen Mills and also other business in cloth. With effect from1st May, 1964, the firm M/s R.S. Madho Ram Sons transferred its business and also its employees to a firm formed under the name and style of M/s Anand Prakash Om Prakash. This latter firm took over the business of trading, in mill made woollen cloth from M/s R.S. Madho Ram Sons with all corresponding assets and liabilities, including the business premises and the employees. There was also a working arrangement made by M/s Anand Prakash Om Prakash with the firm R.S. Madho Ram Sons according to which the employees taken over by the assessee firm continued to on part time job for the predecessor firm which continued its agency business. The firm of M/s R.S. Madho Ram Sons, was dissolved on13th May, 1972. On the dissolution of the firm, a question arose about th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO, during the course of the assessment proceeding, for the asst. yr. 1973-74, for which the accounting period was1st April, 1972to13th May, 1972, the claim of the assessee was in respect of Rs. 36,202 as provision for gratuity to staff and Rs. 13,759 on account of provision for retrenchment allowance. The ITO disallowed the above claims of the assessee with the following observations: "The second expense claimed is for provision for gratuity to staff at Rs. 36,202 and retrenchment allowances of Rs. 30,758. During the course of hearing it was brought to the notice of the assessee that deduction for gratuity is governed by s. 40A(7) (a) which required fulfilment of certain conditions as contemplated in cl. (b)(ii) of the same and as the assessee had not fulfilled the conditions stipulated therein he was not entitled to the claim. It is contended by the assessee that s. 40A(7)(a) is not applicable in the circumstances of the case as he was closing the business and the firm did not continue. As s. 40A(7)(a) does not contemplate different treatment in different circumstances, the assessee is not entitled to the deduction claimed. Notwithstanding this the assessee also did not pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the following observations: "There is no doubt merit in the contention of the learned representative that the provisions of s. 40A(7) put a restriction on provision for the payment of gratuity, but not on actual payment of gratuity. However, on a reference to the direction issued by the IAC under s. 144B it is seen that he noted that no payment by way of gratuity to any employee during the relevant accounting period 1st April, 1972 to 13th May, 1972) had actually been made. In the course of the hearing before me no material was produced to evidence the actual payment of gratuity as alleged. In the circumstances, I have to proceed on the basis that the debit of Rs. 36,202 on account of gratuity was a mere provision. Secondly, according to the provisions of Payment of Gratuity Act, there might have been a liability for gratuity payable to the employees. But, the fact is that the provisions of s. 40A(7) of the IT Act, 1961 restrict the allowance any provision as account of such liability. As the assessment year under appeal is 73-74 the question of allowance has to be decided on the basis of the three conditions laid down under cl. (ii) of s. 40A(7)(b). There is nothing to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merit in the claim for enhanced deduction on account of the so called liabilities relating to gratuity and retrenchment". Aggrieved by the above findings of the CIT(A), the assessee has come up in the present appeal. 8. Before us, the ld. counsel of the assessee submitted that on the dissolution of the firm M/s H.S. Madho Ram Sons, all the employees of that firm were taken over by the assessee firm and hence for all intent and purposes all these employees were the employees of the assessee firm and hence the liability to pay gratuity and retrenchment allowance accrued since the assessee followed mercantile system of accountancy. In this connection, he referred to the provision of s. 25FF of the Industrial Disputes Act, 1947 and also the following decisions: Kedar Nath Jute Mfg. Ltd. vs. CIT (1977) 82 ITR 363 (SC), Ram Singh Sons vs. CIT (1980) 4 Taxman 22 (All), CIT vs. Bharat General Insurance Co. (1971) 80 ITR 22 (Del), Swadeshi Cotton Mills Co. Ltd. vs. ITO 1976 CTR (All) 6 : (1978) 112 ITR 1038 (All), CIT vs. Andhraprabha Pvt. Ltd. (1980) 14 CTR (Mad) 269 : (1980) 123 ITR 760 (Mad), Rama Krishna Sons vs. CIT 1978 CTR (Ori) 20 : (1978) 111 ITR 296 (Ori). 9. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
