1984 (6) TMI 48 - HC - Income Tax

High Court allows gratuity deduction for first year only under Kerala Gratuity Act

The High Court ruled in favor of the Revenue, allowing the deduction for gratuity liability under the Kerala Industrial Employees' Payment of Gratuity ... Business Expenditure, Gratuity Issues:1. Interpretation of provisions for gratuity deduction under the Kerala Industrial Employees' Payment of Gratuity Act, 1970.2. Allowability of deduction for gratuity provision under a voluntary scheme created by the assessee.Analysis:The case involved two main issues referred by the Income-tax Appellate Tribunal. The first issue was whether the Department was correct in not following an earlier order and contending that gratuity was not allowable. The second issue was whether the assessee could claim deduction for gratuity provision under a voluntary scheme for earlier years' services of employees. The assessee, a plywood manufacturing firm, claimed a deduction for gratuity liability for the financial year ending March 31, 1972, which was disallowed by the Income Tax Officer and the Appellate Authority. The matter was remanded to ascertain the existence of a voluntary scheme for gratuity payment. The Appellate Assistant Commissioner later allowed the deduction based on the scheme.The Tribunal disagreed with the assessee's contention that only the existence of the scheme was open for decision and held that the entire question was still open for consideration. The Tribunal found that the assessee, governed by the Kerala Industrial Employees' Payment of Gratuity Act, 1970, could claim a deduction but only for the first year of liability. The liability for gratuity arose under the Act in 1970, and the Tribunal held that the Income Tax Officer's decision to allow only one year's service for deduction was correct.Regarding the second issue, the Tribunal found that the assessee was not entitled to claim deductions for earlier years' liability under the statutory provisions. The assessee's argument of being bound by a voluntary scheme adopted in 1971 was rejected. The Tribunal emphasized that the assessee could only claim deductions in accordance with the statute and not based on its own scheme. The Tribunal ruled in favor of the Revenue, stating that the assessee was not entitled to claim deductions beyond the statutory liability that arose in the relevant period.In conclusion, the High Court answered the first question in the affirmative and the second question in the negative, favoring the Revenue and directing each party to bear their respective costs. The judgment clarified that the Revenue was not estopped by the Tribunal's order of remand, emphasizing that there was no estoppel against a statutory provision.