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TMI Blog1991 (1) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... peated from the statement of the case furnished to us : The assessee sold two shares of Printers (Mysore) Private Ltd. to Shri K. N. Guruswamy for a sum of Rs. 66,000. For the purpose of income-tax assessment, a gross capital gain of Rs. 16,000 was disclosed after deducting the cost of shares which amounted to Rs. 50,000, i.e., Rs. 25,000 per share. It was noticed in the course of the said proceedings that the break-up value of the share was Rs. 50,755 and, accordingly, the provisions of section 52 of the Income-tax Act, 1961, were invoked whereby, as against the sale value of Rs. 66,000, the break up value of Rs. 1,01,510 was adopted for the purpose of computing the correct amount of capital gains. The Gift-tax Officer held in the gift-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability towards gratuity valued on actuarial valuation basis should be considered as a liability which would affect the share valuation and, consequently, the assessee's appeal was allowed. Hence, this reference at the instance of the Revenue. Mr. Chandra Kumar, learned counsel for the Revenue, cited the decision of the Supreme Court in Standard Mills Co. Ltd. v. CWT [1967] 63 ITR 470. The Supreme Court held that gratuity was not a debt and, therefore, while valuing the assets of the company under the provisions of the Wealth-tax Act, the same cannot be deducted. Having regard to the nature of the gratuity that it cannot be held to be a present liability at all was the reasoning applied by the Supreme Court. It was only a contingent liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Supreme Court had to consider whether the provision made in the profit and loss account for the estimated present value of the contingent liability properly ascertained and discounted on an actuarial basis has to be excluded from the income of the assessee under section 28 or 37 of the Act. The various kinds of provisions and payments in respect of gratuity were considered and the Supreme Court rejected the claim of the assessee. The Supreme Court, after referring to Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 (SC), 1991] C. G. T. V. K. N. SHANTHA KUMAR (Kar.) pointed out that gratuity is a "provision" made by the assessee. The Supreme Court held that the amount set apart by way of provision or by way of reserve or fund to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of gratuity which would become due and payable in the previous year was allowed as an expenditure of the previous year on accrued basis when mercantile system was followed by the assessee. (3) Provision made by setting aside an advance sum every year to meet the contingent liability and gratuity as and when it accrued by way of provision for gratuity or by way of reserve or fund for gratuity was not allowed as an expenditure of the year in which such sum was set apart. (4) Contribution made to an approved gratuity fund in the previous year was allowed as deduction under section 36(1)(v). (5) Provision made in the profit and loss account for the estimated present value of the contingent liability properly ascertained and discounte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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