Statutory gratuity liability accrued during the year is deductible under section 37(1) even without a book provision.

A statutory gratuity liability that accrued during the relevant accounting period was deductible under section 37(1) of the Income-tax Act, 1961. The court noted that the West Bengal Employees' Payment of Compulsory Gratuity Act, 1971 created a legal obligation on the employer, and deductibility was not defeated merely because no corresponding provision was made in the books of account. The allowance was also consistent with earlier binding authority on gratuity liability, so the deduction was upheld in favour of the assessee.

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Issues: Whether the liability towards payment of gratuity to employees, quantified on actuarial valuation, was allowable as a deduction under section 37(1) for the assessment year 1972-73 despite no corresponding provision having been made in the books of account.

Analysis: The liability arose under the West Bengal Employees' Payment of Compulsory Gratuity Act, 1971, which came into force during the relevant accounting period and created a statutory obligation on the employer. The absence of a book entry or provision does not determine deductibility where the liability is imposed by law. The claim was also covered by the binding decision on gratuity liability allowance in earlier authority of the same court.

Conclusion: The deduction was allowable under section 37(1) of the Income-tax Act, 1961, and the issue was decided in favour of the assessee.

Ratio Decidendi: A statutory liability that has accrued during the relevant accounting period is deductible under section 37(1) of the Income-tax Act, 1961, and its allowability is not negatived merely because no provision was made in the books of account.

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