Gratuity provision deduction allowed when liability accrued in year and statutory conditions were satisfied under tax law.

Gratuity provision was held deductible where the liability accrued during the relevant previous year, the provision was made on actuarial valuation, and the statutory conditions under section 40A(7) of the Income-tax Act, 1961 were satisfied. The note also records that an earlier order under section 155(13) supported relief to the extent of the liability that had accrued in the year. On that basis, the full gratuity provision was treated as allowable as a deduction and the reference was answered in favour of the assessee.

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Issues: Whether the assessee was entitled to deduction of the gratuity provision claimed for the relevant assessment year.

Analysis: The liability towards gratuity arose during the previous year with the coming into force of the Gratuity Act, and the provision was made on the basis of actuarial valuation. The requisite conditions under section 40A(7) of the Income-tax Act, 1961 were found to have been satisfied. The earlier order under section 155(13) also supported relief to the extent of the liability that had accrued in the year.

Conclusion: The assessee was entitled to deduction of the full gratuity provision, and the reference was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Where the liability for gratuity accrues in the relevant year and the statutory conditions under section 40A(7) are fulfilled, the provision for gratuity is allowable as a deduction.

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