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TMI Blog1975 (12) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... ?" The assessee is a registered firm engaged in the business of manufacturing and selling cashew kernels. The accounting year is the year ended on 31st December, 1970, and the assessment year is 1971-72. It is admitted on both sides that the assessee's method of accounting was the mercantile system. A sum of Rs. 56,173 was debited by the assessee to its profit and loss account and the same amount was credited to the gratuity and retrenchment compensation payable account in respect of the accounting year relevant to the assessment year 1971-72. The assessee also claimed to deduct a sum of Rs. 12,21,750 as arrears of gratuity for the earlier years. The assessee claimed that in computing its profits and gains for the purpose of assessment under the Income-tax Act, it was entitled to make the deductions in respect of the relevant accounting year as well as the earlier years for payment of gratuity in terms of the Kerala Industrial Employees' Payment of Gratuity Act, 1970. The Income-tax Officer disallowed the claim on the ground "that the provision made of a contingent liability like gratuity has not been made on a scientific or actuarial basis". On appeal by the assessee, the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the subsequent accounting period. The assessee having adopted the mercantile system of accounting, it "is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed" : [Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax [1971] 82 ITR 363 (SC)]. The assessee can take into account only such liability as it had incurred during the relevant accounting year, which in the instant case is the year ended on December 31, 1970. According to the Tribunal the liability to pay gratuity arose only in 1970, and not earlier, as the Kerala Industrial Employees' Payment of Gratuity Act, 1970, came into force on February 18, 1970. The reasoning of the Tribunal is that the Kerala Industrial Employees' Payment of Gratuity Ordinance, 1969, which preceded the Act was a temporary enactment, and, therefore, with the expiry of the Ordinance, all rights and obligations which arose under it also expired. This is what the Tribunal says in paragraph 19 of its order : "The next question is whether it can be said, as claimed by the revenue, that such liability arose only in 1969 and not in 1970. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f December, 1969." The question really is whether a liability which had been incurred under the Ordinance had endured beyond the life of the Ordinance. In Stevenson v. Oliver [1841] 151 ER 1024 (Exch D), the court, in examining the question whether a privilege to practise which had accrued in favour of a surgeon under a temporary Act outlived the life of the Act, had occasion to discuss the difference between a temporary statute and a repealed statute from the point of view of rights and obligations. Parker B. says : "Then comes the question, whether the privilege of practising given by the Stat. 6 Geo. 4,.......... is one which continues notwithstanding the expiration of that statute. That depends on the construction of the temporary enactment. There is a difference between temporary statutes and statutes which are repealed ; the latter (except so far as they relate to transactions already completed under them) become as if they had never existed ; but with respect to the former, the extent of the restrictions imposed, and the duration of the provisions, are matters of construction. We must therefore look at this Act, and see whether the restriction in the 11th clause, that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been imposed upon a person, the imposition of the penalty would survive the expiration of the statute." The position in England at the time of the judgment in Steavenson v. Oliver [1841] 151 ER 1024 (Exch D) was that, upon the repeal of a statute, rights acquired or liabilities incurred under the repealed enactment (except in so far as they related to completed transactions) were obliterated as if they had never existed. To avoid this contingency, a saving clause was generally inserted in a repealing statute to preserve such rights and liabilities. on the other hand, the duration of the rights or privileges or obligations which arose under a temporary statute (unlike a repealed enactment) depended upon the construction of the relevant provisions of that statute. The position regarding repealed statutes changed in England with the passing of the Interpretation Act, 1889. Section 38 of that Act provides that, "unless the contrary intention appears, the repeal shall not ............ affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed ;......." This provision dispensed with the necessity of having to insert a saving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odavari Sugar Mills Ltd. [1967] 63 ITR 310 (SC). These principles may be summed up as follows : In the case of a temporary enactment, the extent and duration of the rights, privileges and obligations are matters of construction. A temporary statute is in one sense permanent as to the enduring rights, privileges and obligations created thereunder. In the case of a repealed enactment, unless a different intention appears, the rights, privileges and obligations are kept alive by the General Clauses Act. Wherever a different intention is indicated in the repealing enactment so as to exclude the operation of section 6 of the General Clauses Act (or section 4 of the Kerala Act), the rights and obligations which arose under the repealed statute are, to the extent of their incompatibility with such different intention expressed in the new statute, (except in so far as they related to completed transactions), obliterated as if they had never existed. A close look at the Ordinance and the Act would show that, but for certain minor modifications (such as those contained in section 4 of the Act which, unlike the Ordinance, includes retrenched, discharged or dismissed employees among the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time at which the repeal takes effect ; or (b) affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder ; or (c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed ; or (d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed ; or (e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid ; and any such investigation, legal proceeding or remedy may be instituted, continued or enforced and any such penalty, forfeiture or punishment may be imposed as if the repealing Act had not been passed." The question is whether any different intention appears in the repealing enactment. Counsel for the assessee says that section 13(2) of the Act shows a different intention. According to him, the expression "anything done or any action taken" appearing in sub-section (2) of section 13 indicates that the obligation in respect of gratuity is deemed to have been incurred only under the Act as if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instituted to show that anything had been done or any action had been taken under the Ordinance in respect of gratuity. Even if anything had been done or any action had been taken under the Ordinance, we do not see how any such act would have affected the rights and liabilities which arose under the Ordinance. Section 13(2) only says that anything done or any action taken under the Ordinance would be deemed to have been done or taken under the Act, as if the Act operated retrospectively. The Act is not retrospective in the sense that rights and liabilities arising thereunder operate anteriorly during the period of the Ordinance ; what is provided under the saving clause of section 13(2) is that the machinery of the Act is substituted for that of the Ordinance in respect of anything already done or any action already taken under the Ordinance pursuant to and for the enforcement of such rights and liabilities which arose under the Ordinance. In our opinion the saving provision under section 13 of the Act does not affect or hinder the operation of section 4 of the General Clauses Act in regard to rights and liabilities. Consequently, the obligation in respect of gratuity which aros ..... X X X X Extracts X X X X X X X X Extracts X X X X
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