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TMI Blog1997 (10) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ation : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the amount of gratuity was payable on the basis of all the employees retiring on the date of death of the estate of the deceased and that, therefore, it should be deducted from the principal value of the estate of the deceased for estate duty purposes?" The question referred to us, in our opinion, should be reframed as under : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the amount of gratuity payable on the basis of all the employees retiring on the date of the death of the deceased should be regarded as a liability and, therefore, should be deducted fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ascertained liability allowable under section 44 of the Act. In this view of the matter, he disallowed the claim of the accountable person for the deduction of the gratuity liability. The accountable person preferred an appeal before the Appellate Controller of Estate Duty against the disallowance of Rs. 83,992 made by the Assistant Controller of Estate Duty towards gratuity liability. The Appellate Controller held that the entire amount of gratuity would become due only on the termination of the employment, and since no employee was terminated from service on the date of the death, there was no question of allowing any liability towards the gratuity. He, therefore, held that the assessment made by the Assistant Controller was in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntingent liability and cannot be allowed as a debt under section 44 of the Estate Duty Act. He submitted that there is a distinction between the deduction of the gratuity liability and the deduction towards the provisions made for the gratuity liability. He submitted that the liability is only a contingent liability, and, therefore, the Appellate Tribunal was not correct in holding that the gratuity liability should be deducted on the basis that all the employees would have retired on the date of the death of the deceased. He submitted that the business continued as a going concern and there is no liability towards the gratuity and, therefore, the Tribunal was not correct in holding that the gratuity liability should be deducted from the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remuneration to employees in the future, provided the liability is accurately estimated, i.e., upon an actuarial valuation. Lord MacDermott in that case has held "as a general proposition it is, I think, right to say that, in computing his taxable profits for a particular year, a trader, who is under a definite obligation to pay his employees for their services in that year an immediate payment and also a future payment in some subsequent year, may properly deduct not only the immediate payment, but the present value of the future payment provided such present value can be satisfactorily determined or fairly estimated." The same decision also established the proposition that the total or aggregate obligation to pay gratuity or other retirin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a contingent liability, especially after the enactment of the Payment of Gratuity Act, 1972. This court in CED v. Lucy Pandiaraj [1996] 222 ITR 623, has held that in ascertaining the partner's interest in a firm under the break-up value method, the provision for gratuity based on actuarial valuation is liable to be deducted. In similar circumstances in the case of Smt. Jamnaben G. Mistry v. CED [1994] 210 ITR 50, it was held by the Gujarat High Court as under : "A prudent purchaser or businessman would take into consideration the plus and minus factors before offering a price. Apart from other facts which he may take into consideration, he is bound to consider the liability to pay gratuity to the employees. He may work out that liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny purchaser of the business would certainly take into account the fact that all the employees who have completed the continuous service for gratuity, provided under the Payment of Gratuity Act would be paid gratuity if they were to leave from service. That liability cannot be regarded as a contingent liability at all, but a present and existing liability on the date of the death of the deceased and it should be taken into account in determining the value of the estate. That apart, on the death of the employer, there is a termination of service of the employer and employee relationship in the eye of law, and it is only on the basis of the option of the new employer, the employees of the erstwhile employer continue in service, when the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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