1982 (7) TMI 40 - HC - Income Tax

High Court upholds disallowance of company's gratuity claim under Income-tax Act

The High Court of Madhya Pradesh upheld the decision of the Income-tax Appellate Tribunal regarding the disallowance of the assessee-company's claim for ... Gratuity, Payments Not Deductible Issues:1. Disallowance of the assessee-company's claim for gratuity.2. Liability for payment of interest under section 215 of the Income-tax Act, 1961.Analysis:The High Court of Madhya Pradesh was presented with a reference under section 256(1) of the Income Tax Act, 1961, by the Income-tax Appellate Tribunal, Indore Bench, regarding two questions of law. The first issue was whether the Tribunal was justified in disallowing the assessee-company's claim for gratuity amounting to Rs. 10,03,920. The second issue was whether the assessee was liable for payment of interest under section 215 of the Income-tax Act, 1961.The assessee, a company, claimed a deduction of Rs. 10,03,920 for gratuity for the assessment year 1973-74. The Income Tax Officer (ITO) disallowed the deduction under section 40A(7) of the Act, stating that the conditions were not fulfilled. The Appellate Authority Commissioner (AAC) upheld the ITO's decision, leading to an appeal to the Tribunal. The Tribunal agreed with the AAC's decision on the disallowance of the gratuity claim and also held that interest was chargeable under section 215 of the Act.The assessee argued that the gratuity provision was based on the Payment of Gratuity Act, 1972, and actuarial valuation. However, the High Court noted that section 40A(7) of the Act, inserted with retrospective effect from the assessment year 1973-74, was applicable in this case. The Court found that the liability for gratuity did not arise in the relevant assessment year as per the Payment of Gratuity Act, 1972, and upheld the Tribunal's decision to disallow the claim.Regarding the second issue of liability for interest under section 215, the Court found no error in the Tribunal's decision. Consequently, the High Court answered both questions in the affirmative, ruling against the assessee. The parties were directed to bear their own costs in the reference.