Actuarial gratuity liability was fully deductible when the statutory obligation arose, despite a smaller book provision.

Actuarially ascertained gratuity liability was treated as deductible when the statutory obligation under the West Bengal Employees' (Payment of Compulsory Gratuity) Act, 1971 arose, even though payment depended on future contingencies. The assessee's mercantile accounting method and the fact that only a smaller provision was made in the books did not restrict deduction to that book entry; the full liability, properly computed on actuarial principles, was allowable in the relevant previous year.

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Issues: Whether the assessee was entitled to deduct the actuarially ascertained gratuity liability arising on the coming into force of the West Bengal Employees' (Payment of Compulsory Gratuity) Act, 1971, and whether the entire computed liability was allowable in the relevant previous year despite a smaller provision in the books.

Analysis: The reference was under section 256(1) of the Income-tax Act, 1961, for assessment year 1972-73. The liability for gratuity, though payable on future contingencies, was held to be capable of ascertainment on actuarial principles and deductible in the year in which the statutory obligation arose. The fact that the assessee maintained mercantile accounts and had made only a partial book provision did not prevent deduction of the full liability as determined on a proper actuarial basis.

Conclusion: Both questions were answered in the affirmative and in favour of the assessee.

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