Contingent gratuity liability is not a debt owed on the valuation date for wealth-tax deduction.

For wealth-tax purposes, a provision for gratuity is deductible only if it represents an actual debt owed on the valuation date. Gratuity liability under the Kerala Industrial Employees' Payment of Gratuity Act, 1970 arises only when specified contingencies such as superannuation, retirement, resignation, retrenchment, discharge, dismissal, death, or total disablement occur after the qualifying period is completed. Until then, the liability is contingent and not a present debt. Applying the principle in Standard Mills, the High Court held that the statutory gratuity provision did not alter this character, so the amount was not an allowable deduction and the issue was answered against the assessee.

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Issues: Whether the provision made by the assessee towards gratuity payable to workmen was an allowable deduction as a debt owed on the valuation date while computing net wealth.

Analysis: The liability under section 4 of the Kerala Industrial Employees' Payment of Gratuity Act, 1970, becomes payable only on the happening of specified events such as superannuation, retirement, resignation, retrenchment, discharge, dismissal, death, or total disablement after completion of the qualifying period. Until such events occur, the obligation does not constitute an existing debt on the valuation date. The Supreme Court's ruling in Standard Mills, construing a similar gratuity liability, held that such a liability is contingent and not a debt in praesenti for the purpose of section 2(m) of the Wealth-tax Act, 1957. The statutory gratuity provision did not justify a different conclusion.

Conclusion: The provision for gratuity was not a deductible debt owed on the valuation date, and the question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: For wealth-tax purposes, only an actual debt existing on the valuation date is deductible; a gratuity liability that arises only on future contingencies is not a debt owed on that date.

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