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TMI Blog1973 (5) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... of gratuity on retirement, death or termination otherwise than as punishment on the basis and conditions referred to therein. In order to give effect to this agreement, an actuary was appointed to report on the financial arrangements needed for starting and maintaining the gratuity scheme. The two principal questions on which the actuary's advice was sought were regarding the amounts that have to be set apart for each year after the inception of the gratuity fund as and from 1st July, 1960, and regarding the liability that has already arisen in respect of the existing employees for services rendered prior to 1960. In his report, on the first question, the actuary reported that the contribution to the fund shall be made every year at 4 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered after the next valuation. " In the report to the shareholders on the account for the year ended 30th June, 1961, the directors stated : " The gratuity trust referred to in our last report has been created and the rules thereunder have been approved by the income-tax department. The company proposes to pay off the backlog of initial contribution amounting to Rs. 19,50,000 in convenient instalments. To start with a sum of Rs. 38,880 was paid on this account during the year under report. " In the balance-sheet of the company as on June 30, 1961, the following note was appended : " Actuarial liability for employees' gratuity as at 30th June, 1960.- Balance outstanding as on 30th June, 1961, Rs. 19,11,620. " The respondent in T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s filed by the assessees and directed to modify the assessment and rework the value of the shares after taking into account the sum of Rs. 19,11,620. At the instance of the Commissioner of Wealth-tax, identical questions have been referred to us under section 27(1) of the Wealth-tax Act, 1957 (hereinafter called " the Act "). The question reads as follows : " Whether, on the facts and in the circumstances of the case, the sum of Rs. 19,11,620 on account of contribution to Kasturi and Sons Ltd. Employees' Gratuity Fund was deductible for purposes of ascertaining the value of equity shares in Kasturi and Sons Ltd.? " The learned counsel for the revenue submitted that the liability to provide the sum of Rs. 19,11,620 was a contingent liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed provided that the company shall pay to the trustees every year commencing from July 1, 1960, such sum or sums as may from time to time be determined in accordance with the provisions of the rules and regulations of the trust fund. The entire fund shall vest in the trustees who shall administer the same in accordance with and for the purposes set out in the trust deed. The trustees are obliged to invest all monies which are not immediately required for any of the purposes of the scheme in accordance with section 20 of the Indian Trusts Act. The interest or other income accrued or earned from the said funds or any investments thereof shall form part of the fund. In respect of the liability that had already arisen in respect of the exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause 14(c) extracted above does not leave any option to the company not to pay the initial deposit but only provides payment of that liability in instalments. In Kesoram Industries and Cotton Mills' case the Supreme Court pointed out that " a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation debitum in praesenti, solvendum in futuro ". This passage was quoted with approval by the Supreme Court in Standard Mills Co. Ltd. v. Commissioner of Wealth-tax and the court further observed : " The said decisions also accept the legal position that a liability depending upon a contingency is not a debt in praesenti or in futuro till the contingency happened. But if there is a debt the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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