Actuarially quantified gratuity liability can be deductible when it has crystallised during the accounting year.

A provision for gratuity, computed on an actuarial basis and supported by an Industrial Court award, was treated as an allowable deduction under section 37(1) of the Income-tax Act, 1961 because the liability had crystallised by the close of the relevant accounting year. The analysis accepts that, on these facts, nothing showed the deduction was legally impermissible, so the Tribunal's view allowing the claim was held to be correct in law and the deduction was upheld in favour of the assessee.

---

---

Issues: Whether the provision for gratuity of Rs. 1,34,000, computed on an actuarial basis and supported by an Industrial Court award, was deductible as an allowable expenditure under section 37(1) of the Income-tax Act, 1961.

Analysis: The amount claimed represented the gratuity liability as on the close of the relevant accounting period and had been certified by an actuary on the basis of the Industrial Court award. On these facts, the liability had crystallised during the accounting year, and nothing was shown to indicate that the deduction could not legally be permitted under section 37(1). The Tribunal's acceptance of the deduction was therefore based on a correct view of the law.

Conclusion: The provision for gratuity was rightly allowed as an admissible deduction, and the answer to the reference was in favour of the assessee and against the Revenue.

---