Gratuity provision deduction fails where liability is uncertain and not scientifically valued as present business expenditure.

A gratuity provision is deductible only if it reflects a properly ascertained liability valued on a sound and scientific basis; an ad hoc estimate for a future and uncertain obligation is not allowable as business expenditure. Here, the liability depended on contingent future events such as death, retirement, resignation, dismissal, or termination, and the amount payable would vary with salary at the time the liability matured. The assessee's provision was based on current salaries without adequate allowance for contingencies or proper discounting to present value, so the deduction was disallowed and the issue was answered against the assessee.

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Issues: Whether sums provided in the accounts as gratuity provision for the relevant previous years were allowable deductions in computing business income.

Analysis: The liability under the gratuity award was to arise on uncertain future events such as death, retirement, resignation, dismissal, or termination, and the amount payable would depend on salary at the time the liability matured. The provision made by the assessee was based on current salaries and did not take into account material contingencies or any proper discounting of the future liability to its present value. The method adopted was held to be unsatisfactory, and the claim was confined to specific amounts calculated on that basis without any scientifically supported alternative being put forward before the authorities.

Conclusion: The provision for gratuity was not allowable as a deduction on the facts and basis adopted by the assessee, and the question was answered in the negative, against the assessee.

Ratio Decidendi: A gratuity provision is deductible only where it represents a properly ascertained liability based on a sound and scientific method of valuation; an ad hoc provision for a future and uncertain liability is not allowable as business expenditure.

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