Statutory gratuity liability governs deductibility: a provision is allowable only when the enabling law is in force.

A provision for gratuity is deductible in computing business profits only when the liability is statutory and the governing enactment is in force for the relevant assessment year. Here, the gratuity statute commenced after the year under review, so no statutory liability existed during that year. The amount set aside was therefore not an allowable deduction for that assessment year and could be considered only in the year in which the statute came into force.

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Issues: Whether provision made for gratuity was an allowable deduction in computing the assessee's business profits for the assessment year when the gratuity statute had not yet come into force.

Analysis: A provision for gratuity is deductible where the liability is statutory and the governing enactment is in force for the relevant assessment year. The gratuity statute relied upon had commenced only from June 1971, whereas the assessment year in question preceded that date. In the absence of a statutory liability during the year involved, the amount set apart could not be treated as an allowable deduction for that year.

Conclusion: The question was answered in the negative. The provision of Rs. 80,000 was not deductible in the relevant assessment year and could be allowed only in the assessment year in which the statute came into force.

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