1984 (12) TMI 51

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..... ity Scheme was an allowable deduction in computing the profits and gains of the assessee's business ? " The facts leading up to this reference are stated hereafter. In the course of the assessment proceedings, the assessee claimed before the Income-tax Officer deduction of Rs. 5,90,279 for meeting the liability to pay gratuity to the employees in accordance with the Company's Gratuity Scheme. This claim was made on the basis of the actuarial valuation of the liability as on the last day of the previous year. The payment of gratuity to the employees was in accordance with the terms of the said scheme. The Income-tax Officer disallowed the deduction in respect of the claim on the ground that the liability as at the end of the relevant accou .....

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..... therefore, submits that it is not a statutory liability and, therefore, the assessee is not entitled to get deduction of the amount claimed. He also relied on rule 103 and rule 104 of the Income-tax Rules, 1962, in support of his contention, that unless the Commissioner approves the gratuity fund and the assessee contributes to the said gratuity fund on a reasonable basis as may be approved by the Commissioner, the contribution will not be allowed as deduction under the Income-tax Act, 1961. It is contended that the assessee providing a scheme for payment of gratuity cannot obtain greater benefit than what it might have obtained, had the gratuity fund been approved by the Commissioner. He also submitted that the decision of this court in t .....

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..... s contingent, there is no accrual of liability but in a case where the actuarial valuation is made in respect of a large number of employees retiring in different years, such actuarial valuation of the liability must be treated as an accrued liability of the year in question. In the case of Eastern Spinning Mills Ltd. [1980] 126 ITR 686 (Cal), this court has laid down that the provision for gratuity made on actuarial basis was an allowable deduction under section 37(1) of the Act, even though no sum was paid to an approved gratuity fund as required under section 36(1)(v) of the Act. Apart from the fact that in the relevant year liability was created under the Gratuity Act, such liability for gratuity was also deductible because there was a .....

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