Gratuity deduction under mercantile accounting is confined to accrued liability in the relevant year, not earlier service periods.

Under the mercantile system, gratuity deduction is limited to liability that accrued in the relevant accounting year, so amounts relatable to earlier years' service were not deductible for assessment year 1972-73. A voluntary gratuity scheme could not override the statutory restriction or create retrospective deductibility where the liability had not arisen in the year of account. The Revenue was also not precluded by the earlier remand order from contesting allowability, because the legal issue remained open and there can be no estoppel against a statutory provision.

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Issues: (i) Whether the Revenue was precluded by the earlier remand order from contending that the gratuity claim was not allowable; (ii) Whether, on the existence of a voluntary gratuity scheme, deduction could be claimed in the assessment year 1972-73 for gratuity relatable to earlier years' service.

Issue (i): Whether the Revenue was precluded by the earlier remand order from contending that the gratuity claim was not allowable.

Analysis: The remand order left open the question whether the assessee was legally entitled to claim deduction for gratuity beyond the liability arising in the relevant accounting year. The later appeal, therefore, was not confined to the factual existence of a scheme and the legal contention that the claim was not allowable remained open. In any event, there can be no estoppel against a statutory provision.

Conclusion: The Revenue was not barred from contesting the allowability of the gratuity deduction, and the issue is decided in favour of the Revenue.

Issue (ii): Whether, on the existence of a voluntary gratuity scheme, deduction could be claimed in the assessment year 1972-73 for gratuity relatable to earlier years' service.

Analysis: The liability to provide gratuity arose first under the gratuity legislation during the relevant accounting year. Under the mercantile system, deduction is confined to liability accrued in the accounting period for which income is computed. Exemption under the gratuity statutes could arise only under the enabling exemption provision, and no retrospective exemption was shown for the relevant period. A private scheme could not displace the statutory limitation on deduction for liabilities that had not arisen in the year of account.

Conclusion: Deduction for gratuity relatable to earlier years' service was not allowable in the assessment year 1972-73, and the issue is decided in favour of the Revenue.

Final Conclusion: The assessee could claim deduction only for the gratuity liability that arose in the relevant accounting year, and not for prior years' liability under the voluntary scheme.

Ratio Decidendi: Under the mercantile system, a business deduction for gratuity is confined to liability accrued in the relevant accounting year, and a private scheme or later exemption cannot override the statutory restriction or create retrospective deductibility for earlier years' liability.

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