Gratuity provision deduction under tax law includes past service liability, subject to proper quantification before allowance.

A provision for gratuity liability under the Kerala Industrial Employees' Payment of Gratuity Act, 1970 was treated as allowable in computing income-tax deduction, and the liability could include employees' completed past service before the relevant accounting year. The fact that the gratuity law came into force during that year did not bar consideration of prior service when quantifying the deductible provision. The deduction remained subject to accurate determination of the amount before allowance, and the questions were answered in favour of the assessee and against the Revenue.

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Issues: Whether the assessee was entitled to deduction for the provision made towards gratuity payable to employees under the Kerala Industrial Employees' Payment of Gratuity Act, 1970, including liability referable to past service rendered before the relevant accounting year.

Analysis: The questions referred were governed by the principles already settled in earlier decisions recognising that, for income-tax purposes, a provision made for gratuity liability under the applicable gratuity law could be taken into account in computing the deductible amount. The quantification of the liability could include completed years of service rendered before the commencement of the relevant accounting year, and the fact that the gratuity law came into force during the accounting year did not exclude consideration of prior service for the purpose of determining the deductible provision. The exact amount deductible, however, had to be determined before allowance was actually made.

Conclusion: The questions were answered in favour of the assessee and against the Revenue. The deduction for the gratuity provision was allowable, subject to proper quantification of the amount.

Final Conclusion: The appeals failed and were dismissed, leaving the assessee entitled to the claimed deduction in principle, with the deductible amount to be determined accurately before allowance.

Ratio Decidendi: A provision made for gratuity liability under the applicable gratuity law is allowable as a deduction for income-tax purposes, and the liability may be quantified by taking into account employees' completed past service, subject to correct determination of the amount deductible.

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