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TMI Blog1986 (8) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... as 'Mount Stuart Estate' with the rented depot at Pollachi excluding however the property at Candura known as 'Amar Coffee Plantation' and establishment at Bombay, and the new Ambassador car just purchased by the vendors" [Emphasis supplied]. Clause 10 of the agreement runs as follows : "The purchaser will take over all the staff except the assistant manager employed on the estate and will take over all the labour employed on the estate and employ them on the same terms and conditions as were applicable to them before the date of completion of sale. The purchaser will have no liability whatsoever as regards the assistant manager. The vendors will be liable for all dues of the said staff and labourers in respect of wages, salaries, provident fund, maternity leave and other allowances and benefits, bonus and plucking incentives in respect of their services under the vendors up to the date of delivery of possession except gratuity and shall keep the purchasers indemnified against all claims that may be made against the purchasers in respect thereof. The purchaser will be liable for all gratuity due to the staff and labourers for their services including services under the vendors, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartmental representative, submitted that the Commissioner (Appeals) erred in not applying the ratio laid down in the following decisions to the facts of the case on hand : CIT v. Gemini Cashew Sales Corpn. [1967] 65 ITR 643 (SC), Stanes Motors (South India), Ltd.'s case and Salem Bank Ltd.'s case. He submitted that there is a special provision enacted in sub-section (7) of section 40A of the Act concerning gratuity and any provision made in respect of gratuity by whatever name called unless it is by way of contribution towards an approved gratuity fund or based on actuarial valuation of ascertainable liability and an approved gratuity fund in connection therewith was created. The assessee had done nothing except to make a provision for gratuity and, therefore, the same was rightly disallowed by the ITO. In view of the special provision concerning gratuity the case will not fail under section 37. 4. Shri Padmanabhan, the learned counsel for the assessee submitted that the assessee sold a part of its estate while remaining in the same trade in respect of its other units and in view of the sale of the estate known as 'Mount Stuart Tea Estate' the assessee had bargained for the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices of an employee otherwise than on superannuation. Thus, we find that the employees are entitled to gratuity upon termination even otherwise than on superannuation which is described as retirement. The dispute is not about compensation payable under section 25FF of the Industrial Disputes Act, 1947 but it is with regard to the gratuity under the Payment of Gratuity Act. Though gratuity is payable only upon the happening of specified event, viz., superannuation, retirement, resignation or death or disablement, the employee acquired a right to gratuity if he had rendered continuous service for not less than five years and in view of the fact that the employee has acquired the right upon completion of continuous service for five years, there is growing liability on the part of the employer to pay gratuity to the workers. Of course the actual payment will take place upon the happening of the contingencies envisaged in the Payment of Gratuity Act. Cases involving provision of gratuity fell before the Courts because of the crude and rudimentary manner in which such liability was estimated from year to year. However, when gratuity liability was estimated on actuarial or other scientif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or could have been deducted either under section 28 or under section 37 of the Act. But the use of the non obstante expression in section 40A(1) makes it clear that if there is any legislative base dealing with the provision for gratuity, then the same would be applicable in spite of and notwithstanding any other provision of the Act. Read with the marginal note to section 40A, the non obstante clause of sub-section (1) of section 40A has an overriding effect over the provisions of any other section by providing that the provisions of the section will have effect notwithstanding anything to the contrary contained in any other provision relating to the computation of income under the head 'Profits and gains of business or profession'. Expenditures or allowances which are deductible under any other provision relating to the head 'Business or profession' will be disallowed in cases to which the provisions of section 40A apply." Therefore, we reject the contention of the assessee that section 37, rather than section 40A(7) would apply to the facts of the case. We also reject the contention of the assessee that the word 'provision' used in section 40A(7) should be understood in acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee by way of such contribution before the 1st day of April, 1977." Sub-clause (ii) is not applicable to the facts of the case as the assessment year in question is 1978-79. Sub-clause (i) which is material, is in two parts, viz., (i) where any 'provision... by way of any contribution towards an approved gratuity fund' is made or (ii) where the 'provision' is 'for the purpose of payment of any gratuity, that has become payable during the previous year'. The first limb of this sub-clause would apply to subsisting concerns. When the assessee has sold one of its concerns which is a part of its business it is bound to pay gratuity to its employees upon termination of employment in terms of section 4 read with section 2(q), notwithstanding the fact that the employees were absorbed by the purchaser. So the gratuity had become presently payable on account of the transfer of business and any 'provision', as understood in the ordinary sense of the term, made by the assessee for the purpose of payment of gratuity is exigible for deduction in such circumstances in terms of the second limb of section 40A(7)(b)(i). In the case before us the assessee has agreed to provide by accepting a cut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 40A(7), as that section came into force only with effect from 1-4-1973 and the assessment year in that case was 1972-73. Therefore, the High Court allowed the claim under section 37 and the Commissioner (Appeals) applying the ratio in the case cited supra allowed the appeal of the assessee under section 37. We have already indicated that with effect from 1-4-1973, section 40A(7) is the only provision of law that would apply in relation to gratuity provision. We have also held that the expression 'provision' should be understood in the ordinary sense, as laid down by the Supreme Court in Shree Sajjan Mills Ltd.'s case. In our view the liability for gratuity accrues in respect of each employee upon his completing a continuous period of service for five years, and thereafter goes on accruing with the completion of each year of service, though the payment is postponed till the happening of events like retirement, superannuation, death or disablement. The word 'retirement' as defined in section 2(q) would mean termination, when part of the business of the assessee was sold, there is technically termination of employment with the erstwhile employer giving rise to payment of gratuity. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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