TMI Blog1981 (8) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present value of its future liability to pay gratuity to its employees under the scheme of November 1, 1960, as compared with the similar liability which existed as on September 30, 1963 ? At the instance of the department : " 1. Whether the Tribunal was right in holding that the provisions of section 40(c)(i) and 40(c)(iii) are mutually exclusive and that the expenditure by way of guarantee commission paid to directors was to be considered only in the light of section 40(c)(i) of the Act ? and 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the entire claim of the guarantee commission paid to the directors was allowable as a deduction having regard to the provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and confirmed the disallowance. On further appeal it was claimed on behalf of the assessee that the assessee followed the mercantile system of accounting and though in the previous years deduction on this account had been allowed on cash basis, the position for the year under consideration was different and it was claimed that it was a statutory liability which was clearly allowable. Reliance was also placed on the valuation report of an actuary which was filed before the AAC and according to that report the assessee's present liability in respect of gratuity payable to its employees on death or retirement, for the assessment year 1965-66, had been estimated at Rs. 7,35,000. The Appellate Tribunal did not accept the assessee's contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, that an incremental liability did accrue to the assessee during the relevant assessment year in respect of the gratuity payable by the assessee to its employees on death or retirement. The next question which arises in this regard is as to what should be the quantum of such incremental liability. As noted above, the assessee had filed the valuation report of an actuary before the AAC and the attention of the Appellate Tribunal was invited to this fact. The Appellate Tribunal did not address itself to this aspect of the case and it also did not express any opinion on the admissibility or otherwise of that report. This is what the Tribunal has to say in this regard in the statement of case: "We would only like to point out that at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 decided on December 1, 1978. It Was held that guarantee commission paid to the directors and shareholders who had stood personal security was for the legitimate business needs of the company and that the payment at the rate of 10% of the interest payable to the bankers was not excessive. It was also held that the tests laid down under cl. (c) of s. 40 are satisfied. For the year under consideration, the facts and circumstances being the same, we agree with the view taken by the Appellate Tribunal that the entire claim in this regard was allowable as a deduction under s. 40(c)(i) of the Act. In this situation question No. 2 is merely academic and also does not arise. We, therefore, answer question No. 1 in favour of the assessee and agai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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