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TMI Blog1996 (4) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... e and includible in the principal value, in spite of the fact that Padinjarekara Estate (Coorg) in which the deceased had interest, was admittedly following the cash system of accounting ? " These proceedings relate to the estate of the late Mrs. Annamma Chacko, who passed away on June 25, 1980. The accountable person is her grandson. In connection with the estate duty assessment, the accountable person filed an estate duty account declaring the principal value of the estate at Rs. 2,90,383. In the assessment, the accountable person claimed before the authority that in computing the principal value of the estate of the deceased, deduction should be given for the provision for gratuity. The assessing authority rejected the said claim. Likewise, the assessing authority also included a sum of Rs. 6,00,000 in determining the principal value of the estate of the deceased being the estimated amounts representing the coffee pool payments. Annexure-"B" to the assessment order shows that a sum of Rs. 4,25,000 is shown as provision for gratuity of the Padinjarekara Estates Ltd. The assessing authority completed the assessment by order dated May 2, 1983, determining the principal value of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the coffee pool payments received subsequent to the date of death be deleted from the assessment. Being aggrieved by the order of the Appellate Controller of Estate Duty, Madras, the Department filed an appeal before the Income-tax Appellate Tribunal, Cochin Bench, Ernakulam. Regarding determination of the market value of shares of Padinjarekara Estates Ltd., the Income-tax Appellate Tribunal held that rule 1D of the Wealth-tax Rules has to be applied. The Appellate Tribunal then considered the question regarding the deduction of the provision for gratuity liability while determining the market value of unquoted equity shares of Padinjarekara Estates Ltd. The Appellate Tribunal observed that this question has come up for consideration before the same Bench in E. D. A. No. 15/(Coch) of 1985, dated August 29, 1989, wherein the Appellate Tribunal held that the Appellate Controller of Estate Duty is not justified in holding that the provision for gratuity is an allowable deduction while computing the principal value of the estate of the deceased. Following the said decision, the Appellate Tribunal set aside the order of the Appellate Controller on this point and restored the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why the first appellate authority has observed the legal principles applicable thereto and directed the assessing authority to verify whether this amount represents gratuity liability ascertained on actuarial valuation and if so, to deduct the said amount in the determination of the market value of the shares in accordance with rule 1D of the Wealth-tax Rules. The Income-tax Appellate Tribunal, on the other hand, relying on its own earlier decision in E. D. A. No. 15/(Coch) of 1985 dated August 29, 1989, took the view that the provision for gratuity is not an allowable deduction. In fact we had occasion to consider this question in I. T. R. No. 166 of 1991 and by the judgment dated March 29, 1996--John J. Chackola v. CED [1997] 224 ITR 34 (Ker), we held that the provision for gratuity liability made on the basis of actuarial valuation is a known and existing liability for the year in question and that it cannot be termed as a contingent liability. For arriving at the said conclusion, we applied the decision of the Supreme Court in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559. In this case, the Supreme Court was concerned with the distinction between the two concepts "res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if by adopting such scientific method any appropriation is made such appropriation will constitute a provision representing fairly accurately a known and existing liability for the year in question". It is following the said observations of the Supreme Court that this court in I. T. R. No. 166 of 1991 John J. Chackola v. CED [1997] 224 ITR 34, held that the provision for payment of gratuity made on the basis of actuarial valuation is an existing liability and that it is a liability in praesenti, though the payment of the amount is at a future date and therefore it cannot be said to be a contingent liability. Accordingly, we hold that if the provision for gratuity is made on the basis of an actuarial valuation, the said amount is liable to be deducted in the computation of market value as per rule 1D of the Wealth-tax Rules. Having regard to the fact that there is no material on record to show that the sum of Rs. 4,25,000 shown by Padinjarekara Estates Ltd. in its accounts as provision for gratuity has been made based on an actuarial valuation, we would uphold the course adopted by the Appellate Controller in directing the Assistant Controller of Estate Duty to verify whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant Controller of Estate Duty in regard to such estimation. It is also relevant to note that such directions are in tune with the principles laid down by the Supreme Court in regard to the estimation of the value in Mrs. Khorshed Shapoor Chenai v. Asst. CED [1980] 122 ITR 21 where the Supreme Court has observed that the assessing authority will have to estimate the value having regard to the peculiar nature of the property, its marketability and the surrounding circumstances including the risk or hazard of litigation looming large at the relevant date. We do not find any error or illegality in the findings of the Appellate Tribunal on this point. We accordingly answer the first question referred in the negative, i.e., against the Revenue and in favour of the assessee. But, we make it clear that since there is no material on record to show that a sum of Rs. 4,25,000 towards provision for gratuity liability made in the accounts of Padinjarekara Estates Ltd. was made on the basis of an actuarial valuation, it is for the assessing authority to verify whether the said amount represents the estimate made on the basis of an actuarial valuation and if so, to allow the claim to the exte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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