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TMI Blog1979 (6) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... und is created the claim is disallowed : Rs. 29,865. 2. On appeal before the AAC the assessee raised the following ground : "The claim of gratuity for Rs. 29,865 in the adjustment statement, was made on the basis of the mercantile basis of accounting followed by the company. As per the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363 (SC), the above claim has to be taken into account for arriving at the income. In this connection, the appellant begs to rely on the decision of the Income-tax Appellate Tribunal, Calcutta Bench 'C' in the case of Doolahat Tea Co. Ltd. v. ITO 'J' Ward, Com. Dist. II, Calcutta [IT Appeal No. 4259 Cal. of 1974-75 dated 10 11-1975] wherein it is held that even for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 969] 73 ITR 53 and that of the Kerala High Court in CIT v. High Land Produce Co. Ltd. [1976] 102 ITR 803. The learned counsel also referred to the order of the Appellate Tribunal, Calcutta, C-Bench comprising Shri D.H. Datta and Ch. S. Rama Rao in the case of Doolahat Tea Co. Ltd. v. ITO [IT Appeal No. 4259 (Cal.) of 1974-75, decided on 10-11-1975] in which the similar contention raised on behalf of the assessee was accepted by the Appellate Tribunal. The learned counsel strenuously urged that section 40A(7) of the Act would apply only to cases where a provision is made in the accounts for payment of gratuity and that a claim made by the assessee before the ITO would not amount to a provision. He submitted that in this case the assessee did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious year ; (ii) any provision made by the assessee for the previous year relevant to any assessment year commencing on or after the 1st day of April, 1973, but before the 1st day of April, 1976, to the extent the amount of such provision does not exceed the admissible amount, if the following conditions are fulfilled, namely :-- (1) the provision is made in accordance with an actuarial valuation of the ascertainable liability of the assessee for payment of gratuity to his employees on their retirement or on termination of their employment for any reason ; (2) the assessee creates an approved gratuity fund for the exclusive benefit of his employees under an irrevocable trust, the application for the approval of the fund having been ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmination of their employment for any reason has been allowed as a deduction in computing the income of the assessee for any assessment year, any sum paid out of such provision by way of contribution towards an approved gratuity fund or by way of gratuity to any employee shall not be allowed as a deduction in computing the income of the assessee of the previous year in which the sum is so paid." 5. The question for consideration is whether section 40A(7)(a) would not meet an assessee when he claims a deduction of a sum due for making gratuity payment to its employees. A plain reading of the above section shows that the terms of the section would apply in respect of any provision by whatever name called, made by the assessee for payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undamental and basic ingredients that go to determine the income from profits and gains of the business, we will confine only to those relating to deductions. Deductions take shape by way of expenditure, losses and statutory allowances. The last category, i.e., statutory allowances, are granted by statutes and stand apart and may be described as flowing extraneous and they do not emerge from out of the assessee's incurring expenditure or losses whereas deduction must be incurred or incurable by the assessee and similarly losses must also spring out of the transaction of the assessee. Both the expenditure and losses, therefore, would necessarily become deductible in determining the income or losses. It is not disputed that these may or may n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt has been expressed that, under the relevant provisions, as presently worded, provisions made in the books of account by taxpayers would also qualify for deduction. This is clearly not the intention since the employer continues to have control over these funds. I propose to provide specifically that no deduction for tax purposes will be allowed in respect of such provisions made to provide for future gratuities." Actually, when the expression 'provision' has been introduced, there was no reference to the 'book of account' as the present provision only refers to the 'provision made' in whatever name it is called. Further the main idea is to see that the employer does not have control over the funds. We have already set out earlier as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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