Actuarially valued gratuity liability is deductible as business expenditure when the obligation arises during the accounting year.

A gratuity provision is deductible as business expenditure where the liability arises during the accounting year and is a present, definite obligation capable of actuarial valuation. The fact that the valuation partly reflects past service does not make the claim contingent if the gratuity scheme came into force in that year. A provision for such an ascertained liability is an allowable deduction in computing business income, and the decision distinguishing contingent retrenchment compensation on business transfer was not applied to this gratuity obligation.

---

---

Issues: Whether a provision for gratuity liability, ascertained on actuarial valuation and relating partly to past service, was deductible as a business expenditure in the relevant assessment year.

Analysis: The gratuity scheme came into force during the accounting year, so the liability arose for the first time in that year. The amount was determined by actuarial principles and represented a present and definite obligation capable of commercial valuation. A provision for such liability was treated as a permissible deduction, and the decision of the Supreme Court on retrenchment compensation was distinguished because it concerned a contingent liability arising on transfer of the business, not a gratuity obligation already in existence during the course of business.

Conclusion: The deduction was allowable, and the assessee's claim succeeded.

Final Conclusion: A gratuity provision based on actuarial valuation and referable to a definite liability arising during the accounting year is deductible in computing business income.

Ratio Decidendi: A present and definite gratuity obligation, valued on actuarial principles, constitutes an allowable business deduction even if the valuation takes past service into account.

---