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TMI Blog2006 (8) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... 77) (iii) Provision for gratuity for prior years 14,84,649 based on actuarial valuation made in the accounts for 1971 disallowed in the assessment for assessment year 1972-73 and upheld in appeal now claimed (paid over to MICO Trust during 1977) ------------------------------------------------------------ Besides these claims, certain other claims towards gratuity were also made. Regarding the claim of the first item as above, the Assessing Officer disallowed in the assessment stage a sum relating to the year 1976 of Rs. 31,48,082. Out of this amount, a sum of Rs. 13,13,169 was ultimately allowed by the appellate authorities including the Tribunal and hence the balance amount of Rs. 18,34,913 was claimed afresh in the year under present consideration by way of the second amount as shown above. The Assessing Officer further observed that, since the creation of the trust, it had been the practice of the assessee to make claims of premium paid to LIC under the Group Gratuity LIC Fund and also of payments made by the assessee through the gratuity trust to its employees who left during the year towards short-fall in settlement by the LIC of India. According to him, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 32,66,475 of the year 1977 as a result of actuarial valuation. (ii) Provision for gratuity for 1976 based on 18,34,913 actuarial valuation made in the accounts for 1976 disallowed in the assessment year 1977-78 now claimed (paid over to the MICO gratuity trust during 1977) (iii) Provision for gratuity for prior years based 14,84,649 on actuarial valuation made in the accounts for 1971 disallowed in the assessment for the assessment year 1972-73 and upheld in appeal now claimed (paid over to MICO Trust during 1977) ------------------------------------------------------------ Besides these certain other claims towards gratuity were also made. The assessing authority ruled that the assessee itself had disallowed a sum of Rs. 31,48,082 relating to the year 1976. Out of this amount a sum of Rs. 13,13,169 was ultimately allowed by the appellate authority including the Tribunal and hence the balance of Rs. 18,34,913 was claimed afresh in the year under present consideration by way of the second amount as shown above. The Assessing Officer further observed that, since the creation of the trust, it had been the practice of the assessee to make claims o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Learned counsel further says that in the light of section 40A(7)(b), the assessee's claims ought to have been allowed by the Tribunal. He would also say that this very Tribunal for the subsequent assessment year has accepted the case of the assessee. In so far as the second question at the instance of the Revenue is concerned, Sri Dastur learned counsel would argue that the assessee had provided for a sum of Rs. 18,34,913 and a sum of Rs. 14,84,649 in its accounts for the earlier years but the same were not allowed as a deduction. The assessee paid the said amount to the fund in the calendar year 1977 and that therefore deduction is permissible in law. He would further say that the Tribunal after referring to the judgment of this court in CIT v. Smith, Kline and French (India) Ltd. [1991] 191 ITR 308 has allowed the same as deduction. He therefore would say that the second question has to be answered in favour of the assessee. Per contra, Sri Seshachala, learned senior counsel would argue that a sum of Rs. 32,66,475 is an additional liability in respect of the year 1977. It was not an expenditure for the current assessment year as ruled by the Tribunal. He would say that sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the head "Profits and gains or business in profession". Section 40A(7)(a) is subject to section 40A(7)(b). Section 40A(7)(a) would not apply in certain circumstances. Those circumstances have been mentioned in the provision itself. It states that clause (a) of section 40A(7) shall not apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable. during the previous year. Therefore from a reading of this provision what is clear to us is that the contention of the Revenue of factual payment is not very relevant for the purpose of deduction in the light of section 40A(7)(b) of the Act. In these circumstances, the first question in I. T. R. C. No. 618 of 1998 has to be answered in the light of payment of gratuity in respect of the year 1977 which is made in the very year itself. In so far as question No.2 in I. T. R. C. No. 618 of 1998 is concerned, the Act itself provides for allowance in terms of section 40A(7) of the Act. Section 36(1)(v) is available to the assessee in the light of gratuity for the year 1976. Simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Calcutta High Court reported in Indo-Burma Petroleum Co. Ltd. v. CIT [1982] 136 ITR 251, wherein it is ruled that where a surplus arises due to a fluctuation in the exchange rate, the true test to find out if such surplus is assessable is to find out if it arose out of any trading activity. It must be a result of a trading activity of the assessee or it must arise or result from the trading activity of the assessee. Merely because the holder of a currency gets something more than what it would have got otherwise would not transform the accretion into a trading profit unless the holding or the dealing in foreign exchange of the particular currency was the trading activity of the assessee concerned. Where the Tribunal had made a categorical finding that an amount received by the assessee represented profit on exchange but there was no finding that the profit arose due to fluctuation or escalation of price in respect of export sales and the assessee was not a dealer in foreign exchange. It was further ruled that the profit on exchange was not liable to tax. At this stage, we must also notice a judgment of this court reported in Hindustan Aircraft Ltd. v. CIT [1963] 49 ITR 471 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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