Deferred gratuity accrues only on agreed instalment dates, so revision was unsustainable where retirement did not trigger full taxation.

Where gratuity was sanctioned for payment in specified future instalments, and the governing rules barred receipt or deemed receipt before those dates, no right to receive accrued merely on retirement. The deferred instalments therefore did not accrue or arise in the year of retirement, and the assessment could not be treated as erroneous for taxing only amounts that had actually accrued. On that basis, revision under section 263 was held unsustainable and the original assessment was restored.

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Issues: Whether the entire gratuity amount became taxable in the assessment year of retirement, and whether the Commissioner was justified in revising the assessment under section 263.

Analysis: The gratuity was sanctioned to be paid in specified instalments on future dates, and the governing gratuity rules provided that the employee would not be eligible to receive or be deemed eligible to receive the instalments before those dates. In such a situation, the right to receive did not accrue merely on retirement. The accrual and payment having been deferred by agreement to future dates, the deferred amounts could not be treated as having accrued or arisen before the agreed dates. The assessment order, therefore, could not be said to be erroneous for not taxing the entire gratuity in the year of retirement.

Conclusion: The entire gratuity did not accrue in the year of retirement, and the Commissioner's revision was unsustainable.

Final Conclusion: The appeal succeeded, the revisional order was set aside, and the original assessment was restored.

Ratio Decidendi: Where payment of gratuity is contractually and rule-wise deferred to future instalment dates, income accrues only on the agreed dates and not on the date of retirement.

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