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TMI Blog1995 (3) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... 1977) Rs. 18,34,913 (iii) Provision for gratuity for prior years based on actuarial valuation made in the accounts for 1971 disallowed in the assessment for assessment year 1972-73 and upheld in appeal now claimed (paid over to MICO Trust during 1977) Rs. 14,84,649 3 (a). It is required to be mentioned in this connection that there was further claim of the assessee towards premium paid to Life Insurance Corporation of India for 1977 under the Group Gratuity Life Insurance Scheme of Rs. 20,99,141 which was allowed by the AO himself. There was also another claim in respect of Rs. 1,05,89,439. This claim was not allowed either by the AO or even by the first appellate authority and the Tribunal also, in the assessee's appeal for this year. 3(b). Regarding the claim of the first item as above, the AO discussed ill the assessment order that for assessment year 1977-78, the assessee itself had disallowed in the adjustment stage a sum relating to the year 1976 of Rs. 31,48,082. It is to be mentioned that out of this amount, a sum of Rs. 13,13,169 was ultimately allowed by the appellate authorities inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(f). On a careful reading of the decision of the Supreme Court in the case of Shree Sajjan Mills Ltd., we find that the following propositions have been laid down therein : (i) Whatever is provided for future use by the assessee out of the gross profits of the year of account for payment of gratuity to employees is to be considered as ' provision made by the assessee ' and the expression ' need not be ' restricted to its usage in the artificial sense, viz., of setting apart specifically an amount by the assessee for meeting the liability for gratuity in the account books. This means that if the liability towards gratuity arises during the previous year under consideraation and if the said liability be not expended out during the year, the amount under consideration will have to be considered as provision for gratuity. (ii) The allowability of such a provision will have to be determined strictly in accordance with the conditions laid down in section 40A(7) and no other provisions of the Income-tax Act shall apply to allowability of such a provision on account of the non obstante expression used in section 40A(1). (iii) Although payment of gratuity is made on retirement or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xceeded. He relied on the following decisions in support of his claim that even though the limit as above was exceeded, there cannot be any disallowance of the amount to be contributed to the gratuity fund as long as the fund remains approved by the CIT : (i) CIT v. Eastern Equipment Sales Ltd. [1993] 201 ITR 858 (Cal.) (ii) CIT v. Super Spinning Mills Ltd. [1987] 166 ITR 518 at page 524 (AP) (According to this decision, for the purpose of computing contribution to be made to the gratuity fund at the rate of 8-1/3% of the salary, the salary should include dearness allowance). (iii) Super Spinning Mills Ltd. v. ITO [1984] 19 TTJ (Mad.) 588, ITAT Madras ' B ' Bench. (iv) CIT v. Triplicane Permanent Fund Ltd. [1989] 179 ITR 492 (Mad.). 3(h). We find that the case of Tuttapullum Estates has relied upon by the learned Departmental Representative is one relating to the transitional period comprising assessment year 1973-74 to which the provisions of section 40A(7)(b)(ii) applied, with which we are not at all concerned with regard to the present issue. We are, however, concerned with the provisions of section 40A(7)(b)(i) only. The Calcutta High Court held in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the other hand, held that the actual payments made by the assessee to the gratuity trust on the basis of the actuarial valuation during the previous year, viz., the calendar year 1977 is to be allowed as a deduction. Accordingly, he allowed both the amounts. The learned departmental representative has strongly objected to this allowance by arguing that the question of allowability of gratuity liability is solely guided by the provisions of section 40A(7) as decided by the Supreme Court in the case of Shree Sajjan Mills Ltd. He also relies on the two decisions of Kerala High Court in the case of CIT v. Travancore Cement Ltd. [1990] 184 ITR 319 and CIT v. N. Radha Bai [1989] 180 ITR 429 in support of his claim. The learned counsel for the assessee, on the other hand, strongly argues that the case of Shree Sajjan Mills Ltd. was one where no recognised gratuity fund was created. According to him, therefore, the Supreme Court did not have any scope of examining the applicability of the provisions of section 36(1)(v) vis-a-vis section 40A(7). According to Shri Dastur, these two provisions are completely independent of each other and relate to two different matters -- whereas section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actuarial valuations as on 31-3-1970 and 31-3-1971. The Karnataka High Court held in that case that an expenditure which could be claimed as a deduction in any assessment year should have been incurred in the relevant accounting year. Therefore, if the expenditure of an earlier year is taken into account in a later year the true profits of the later year, cannot be determined and the result would be lopsided and unreal. With regard to this particular decision of the Karnataka High Court, we agree with the arguments of Shri Dastur that in the instant case, the amounts have simply not been claimed on the basis of liabilities accruing in the year. The said liabilities might have accrued in the earlier years but the claim has been made by the ITO on the ground of actual contributions to the approved gratuity fund having been made in this year and in terms of the provisions of section 36(1)(v). In this connection, we would like to rely on the finding of the Supreme Court in the case of Shree Sajjan Mills Ltd. as discussed by us above. In that case, the Supreme Court clearly held that the liabilities towards gratuity become an accrued liability only when the employees retire or their ser ..... X X X X Extracts X X X X X X X X Extracts X X X X
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