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TMI Blog1982 (12) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... on, retrenchment or death. In this sense, the liability is said to be a "contingent liability ". But owing to modern systems of actuarial valuation, it would be possible to ascertain the, present discounted value of the employer's commitment to pay gratuity to his entire labour force as and when the time comes. This value, if ascertained on actuarial basis, would be progressively increasing every year, even if the strength of the workmen and staff remains constant. As between one year and the next, the figure of discounted value would register an increase. This actuarial increase is often called " incremental value ". According to sound principles of commercial accounting, the annual increment in the discounted value will be a proper charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made was rightly allowed by the Tribunal as a deduction in the computation of the business income of the concerned account year of the respective assessees. We, however, wish to correct an error in the Tribunal's order. The Tribunal observed that the allowance on account of provision for gratuity must be granted to the assessees under s. 37 of the I.T. Act, 1961. This is mistaken view of s. 37. This section is a residuary provision for the allowance of business expenditure in the computation of taxable business profits. In terms, this section deals with an expenditure " incurred " or " laid out " by the assessee. A provision for gratuity, although it has to be charged against current profits, is not an item of expenditure strictly so call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord is said about deductions or allowances, or even about the computation of business profits, in s. 28. In our view, it is quite unnecessary for us to seek a statutory basis for everything connected with income or everything concerned with the computation of taxable income. It is enough that we are able to find a given deduction as warranted by sound principles of commercial accounting, if they do not fall under, or are prohibited by, any of the express provisions relating to business deductions. That is why, following the English scheme of taxation on business income, our courts sometimes observe that all legitimate business expenses, unless prohibited by the statute, are allowable under the income-tax law. This way of stating the legal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case, the assessee is entitled to deduction of Rs. 57,141, being the provision made towards gratuity liability for the assessment year 1972-73 ?" T.C. No. 1142 of 1979: " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to the deduction of the sum of Rs. 13,731 representing provision for gratuity in the assessment year 1972-73 ?" T.C. No. 1249 of 1979: " Whether, on the facts and in the circumstances of the case, the assessee is entitled to the deduction of Rs. 58,436 representing incremental liability to gratuity for the assessment year 1972-73 ? " For the reasons earlier stated, our answer to each of these questions is in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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