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Issues: (i) Whether, on the facts, the assessee was liable to provide for gratuity by taking into account the employees' completed service prior to the accounting year under the Kerala Industrial Employees' Payment of Gratuity Act, 1970. (ii) Whether the assessee was the employer liable for gratuity in respect of the transferred factories.
Issue (i): Whether, on the facts, the assessee was liable to provide for gratuity by taking into account the employees' completed service prior to the accounting year under the Kerala Industrial Employees' Payment of Gratuity Act, 1970.
Analysis: The transfer arrangement was held to be a transfer of the business as a running concern with all existing rights and liabilities, and the employees were to be retained without break in service on the same terms and conditions. In that setting, the statutory gratuity liability under section 4 was not confined to service rendered only during the accounting year. The entire period of continuous service had to be considered, and the liability could be accounted for on the basis of its present value even though payment would arise only on the happening of a future contingency.
Conclusion: The question was answered in the affirmative, in favour of the assessee.
Issue (ii): Whether the assessee was the employer liable for gratuity in respect of the transferred factories.
Analysis: Under the agreement, the assessee had ultimate control over the affairs of the factories and had undertaken to engage the existing workmen without interruption of service. In view of the statutory definition of employer in section 2(a), the assessee became the employer for purposes of gratuity liability. The liability therefore attached to the assessee during the relevant accounting year.
Conclusion: The question was answered in the affirmative, in favour of the assessee.
Final Conclusion: The reference was answered entirely in favour of the assessee, holding that gratuity liability was to be computed on the footing of continuous service and that the assessee was the employer responsible for that liability.
Ratio Decidendi: Where a business is taken over as a running concern with employees continued in uninterrupted service, gratuity liability under the governing statute extends to the whole period of continuous service and may be provided for on actuarial principles as a present liability.
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