Gratuity and notice pay deduction denied where business continued and no accrued liability arose in the accounting year.

Gratuity and notice pay claimed following the proprietor's death were not deductible in the relevant accounting year because the business continued uninterrupted and the employees' services were not terminated in substance. The liability had not definitely accrued during the year in which the business was carried on by the assessee, and a liability arising only after the accounting year or from an assumed transfer of business was outside the allowable business deduction. The claim therefore did not satisfy the statutory conditions for an accrued and payable gratuity-related liability and was disallowed.

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Issues: Whether the gratuity and notice pay claimed on the death of the proprietor were deductible in the relevant accounting year.

Analysis: The business continued without interruption after the proprietor's death and there was no termination of the employees' services in substance. The liability for gratuity and notice pay did not arise during the year in which the business was carried on by the assessee, and there was no definite obligation accruing within that previous year. A liability arising only after the accounting year, or one springing from a supposed transfer rather than from the carrying on of business, is not an allowable business deduction. The statutory provisions relied upon did not create a payable liability on these facts, and the claim fell outside the allowance contemplated for gratuity.

Conclusion: The claim for deduction of gratuity and notice pay was not allowable and was rightly disallowed.

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