1991 (1) TMI 40 - HC - Income Tax

High Court rules on gratuity deduction & jeep classification for depreciation under Income-tax Act.

The High Court of Madras ruled against the assessee in a case involving the deduction of gratuity liability and the classification of jeeps for ... Allowing Gratuity, Allowing Remuneration To Employees, Depreciation Issues Involved: 1. Deduction of gratuity liability 2. Classification of jeeps for depreciation Deduction of Gratuity Liability: The High Court of Madras addressed the issue of whether the assessee could claim a deduction for the incremental liability for gratuity pertaining to the accounting year relevant to the assessment year 1974-75. The court noted that the provision for gratuity should meet specific conditions u/s 40A(7) of the Income-tax Act, 1961. The court emphasized that gratuity is deductible only under certain circumstances, such as when it is paid or has become payable during the accounting year, or when a contribution is made towards an approved gratuity fund. Since the assessee had not complied with these conditions and had not made any provision for gratuity in its accounts, the deduction claimed was rightly disallowed. The court referred to previous judgments to support its decision and ruled in favor of the Revenue on this issue.Classification of Jeeps for Depreciation: The second issue involved determining whether jeeps are considered as motor cars for the purpose of depreciation. The court examined the proviso to section 43(1) of the Act, which sets limits on the cost of motor cars acquired within a specified period. The assessee argued that jeeps should not be classified as motor cars due to their specific usage and characteristics. However, the court disagreed with this argument, citing definitions from legal sources and previous case law. The court highlighted that both motor cars and jeeps share common features, such as being self-moving vehicles designed to carry passengers and propelled by internal power sources. Therefore, the court upheld the decision that jeeps are classified as motor cars for depreciation purposes. Consequently, the excess cost of jeeps over the specified limit was disallowed. The court ruled in favor of the Revenue on this issue as well.In conclusion, the High Court of Madras answered both questions in the affirmative and against the assessee. The court held that the assessee was not entitled to claim the deduction for gratuity liability and that jeeps are classified as motor cars for depreciation purposes. The Revenue was awarded costs for the reference, with counsel's fee set at Rs. 500.