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TMI Blog1978 (4) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 363 (SC) would apply to the assessee's case. The ITO then pointed out that the contentions of the assessee were not acceptable firstly because of the decision of the Supreme Court in Metal Box Co. Of India Ltd. was rendered under a different Act. He relied on the decision of the Supreme Court in case of Bombay Dyeing and Manufacturing Co. Ltd. vs. CWT (1974) 93 ITR 603 (SC) as well as the decision in case of Standard Mills Co. Ltd. vs. CWT (1967) 63 ITR 470 (SC). These decisions, the ITO observed took the case of the assessee out of the purview of the Supreme Court decision in Kedar Nath Jute Mills Ltd. Secondly, the claim regarding gratuity was covered under s. 36(1)(v) of the Act and did not fall under s. 37 of the Act. The provisions of s. 36(1)(v) of the Act provided for payment of gratuity to workmen of payment to a recognised provident fund as admissible deduction. The liability for gratuity was not an admissible deduction on due basis. Thirdly, according to the ITO the assessee was entitled to be assessee on the basis of the system of accounting which it followed. The assessee was bound by agreement with its workmen even in the past to make payment of gratuity but the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad it fulfilled any statutory requirements. That apart the liability to pay gratuity did not arise till the employee retires or the business of the employer was closed down. The liability for gratuity had, therefore, not been crystallised. Therefore, the assessee's claim for deduction was not tenable. 4. Being aggrieved, the assessee has come up in appeal before us. Shri Dastur, on behalf of the assessee urged before us that the authorities below have not appreciated the correct position. The assessee had not made any provision for payment of gratuity. The assessee's claim was based on actuarial valuation report dt. 25th July, 1973. The liability for payment of gratuity arose under payments of Gratuity Act, 1972. It is true, Shri Dastur argued, that provisions of s. 40A(7) of the Act have been brought on statute book with retrospective effect from 1st April 1973 and these provisions are, therefore, applicable from A.Y. 1973-74 i.e., assessment year under appeal. A close reading of s. 40A(7) of the Act shows that cl. (a) would apply to an assessee who has made provision for payment of gratuity to his employees on their retirements or on termination of their employment. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any provision nor actuarial computation thereof has been made. The note also states that no provision has been made for the accruing liability for gratuity, whether under the Payment of Gratuity Act, 1972 or otherwise, and the amount of such liability is unascerained, as no calculations relating thereto have been made by the company. Thus, the assessee company on its own admitted the fact that the payment or gratuity was made on cash basis, i.e., as and when paid and no provision nor any actuarial valuation was made. The claim based on actuarial valuation which was made before the ITO was merely an after-thought and should not be taken into consideration. Shri Gangal, therefore, pointed out on face of this fact that the assessee cannot now be urged to say that its claim for gratuity should be allowed on basis of the actuarial valuation as the system of accounting followed by the assessee was mercantile. 5. We have carefully considered the rival submissions. It is not disputed that the assessee's case is based on the actuarial valuation dt. 25 July, 1973. It is also not in dispute that the assessee had made no provision against its liability for gratuity. Now relevant provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided it is an item which is allowable as a deduction on ordinary commercial principles. The ratio of this decision is that if the assessee's claim cannot be fitted in provisions contained in ss. 30 to 43A of the Act, it is open to the assessee to claim deduction on general commercial basis. The other aspect of the matter is and it is the contention of the Revenue that the assessee had not made any entries in the books to support the claim. So far as this contention is concerned, the following observations of Their Lordships of the Supreme Court in Kedar Nath Jute Manufacturing Co. Ltd. would be relevant. ''Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter." With these observations, let us consider the claim of the assessee. The assessee maintains its books of account on mercantile system of accounting and the payment of gratuity was a statuary which the assessee has to meet under Payment of Gratuity Act, 1972. The assessee has not ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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