Actuarial gratuity provision as deduction where a new statutory liability arose and was treated as an allowable business expense.

A provision for employees' gratuity computed on actuarial valuation was held allowable as a deduction where a new statutory liability arose during the relevant accounting year under the West Bengal Employees' (Payment of Compulsory Gratuity) Act, 1971. The Court applied the reasoning in Eastern Spinning Mills Ltd. and treated the gratuity provision as a deductible business expense because it reflected a legally enforceable liability, rather than a contingent reserve.

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Issues: Whether the assessee was entitled to deduction of the amount provided for gratuity for employees.

Analysis: The deduction related to a provision for gratuity computed on the basis of actuarial valuation. The provision was made in the background of the West Bengal Employees' (Payment of Compulsory Gratuity) Act, 1971, which had come into force during the relevant accounting year and created a new statutory liability. The question was covered by the decision of the Court in Eastern Spinning Mills Ltd., and the same reasoning applied.

Conclusion: The deduction was rightly allowed and the question was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: A gratuity provision made on actuarial valuation in respect of a newly created statutory liability is allowable as a deduction.

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