2001 (7) TMI 30 - HC - Income Tax

Court denies gratuity liability claim & foreign tour expenses deduction. Assessee's claims dismissed.

The court upheld the Tribunal's decision, denying the assessee's claim for gratuity liability and foreign tour expenses deduction. It was determined that ... - Issues:1. Entitlement to gratuity liability and foreign tour expenses deduction.Analysis:Gratuity Liability:The case involved the question of whether the assessee was entitled to a gratuity liability of Rs.55,680 and foreign tour expenses deduction for the assessment year 1978-79. The assessee claimed that the liability to pay gratuity accrued on March 18, 1978, the date of the first notice of closure. The contention was based on the provisions of section 40A(7)(b)(i) of the Income-tax Act, which allowed a deduction if the gratuity had become payable during the previous year. However, the Tribunal held that no event specified in the Payment of Gratuity Act had occurred during the previous year, and therefore, no liability had arisen that would entitle the assessee to claim the deduction. The Tribunal found that the actual termination of services took place after the close of the accounting period, and under the mercantile system of accounting, there was no accrual of liability. The court upheld the Tribunal's decision, stating that the establishment was legally closed down only with effect from May 19, 1978, falling beyond the accounting period of March 31, 1978.Foreign Tour Expenses Deduction:Regarding the foreign tour expenses deduction for Shri V. P. Mehta, the assessee contended that the expenses were incurred to enhance the services provided by the company through expertise gained by Shri Mehta in international tax planning. The Revenue authorities disallowed the deduction, stating that the assessee failed to establish a requisite nexus between the business and the trip. The Tribunal found that the assessee did not provide sufficient evidence to prove that the expenditure was wholly and exclusively incurred for business purposes. The court agreed with the Tribunal's findings, stating that there was no infirmity in the decision based on the evidence on record. The court answered the questions in favor of the Revenue and against the assessee, disposing of the reference accordingly.