9911796707
TMI Blog1999 (2) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to Rs. 94,36,506, particularly when compensation for the takeover of the sick mills were, inter alia, decided after taking into account the liability of the gratuity for the pre-nationalisation period ?" The assessee is a corporation owned by the Government of Madhya Pradesh. It took over all the assets of sick textile mills as per their value shown in the balance-sheet as on March 31, 1974, pursuant to the Sick Textile Undertakings (Nationalisation) Act, 1974. It also took over certain liabilities as envisaged in the Act. The corporation later claimed a deduction of Rs. 94,36,506 for the assessment year 1984-85 on account of the gratuity paid to the employees of the sick units, taken over by it. Its claim was denied by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "We have considered the rival submissions. It is not in dispute that the assessee-corporation had taken over certain sick textile mills along with certain specified liabilities including the liability to pay gratuity. The evidence on record shows that such liability was estimated at Rs. 5,48,86,706 and in the books of account provision was made for the same. The deduction during the year under consideration is claimed on the basis of actual payment. In the circumstances, we see no reason as to why deduction claimed should not be allowed. It is well settled that a provision is an appropriation of money for a known and existing liability. It is not necessary that such liability is quantified, but it must certainly be a known and existing liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nits had claimed this amount prior to or after the nationalisation. Therefore, the Tribunal had rightly allowed the deduction by treating the provision as an appropriation of money for a known and existing liability. It would be advantageous in this regard to refer to the observations of the Supreme Court in Shree Sajjan Mills' case [1985] 156 ITR 585 observing thus : "On a plain construction of clause (a) of sub-section (7) of section 40A what it means is that whatever is provided for future use by the assessee out of the gross profits of the year of account for payment of gratuity to employees on their retirement or on the termination of their services would not be allowed as deduction in the computation of profits and gains of the year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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