TaxTMI 
TaxTMI 
2006 (8) TMI 157
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....sp; Rs. (i) Additional liability for gratuity in respect 32,66,475 of the year 1977 as a result of actuarial valuation. (ii) Provision for gratuity for 1976 based on 18,34,913 actuarial valuation made in the accounts for 1976 disallowed in the assessment year 1977-78 now claimed (paid over to the MICO gratuity trust during 1977) (iii) Provision for gratuity for prior years 14,84,649 based on actuarial valuation made in the accounts for 1971 disallowed in the assessment for assessment year 1972-73 and upheld in appeal now claimed (paid over to MICO Trust during 1977) ------------------------------------------------------------ Besides these claims, certain other claims towards gratuity were also made. Regarding the claim of the first item as above, the Assessing Officer disallowed in the assessment stage a sum relating to the year 1976 of Rs. 31,48,082. Out of this amount, a sum of Rs. 13,13,169 was ultimately allowed by the appellate authorities including the Tribunal and hence the balance amount of Rs. 18,34,913 was claimed afresh in the year....
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....e same to the income of the assessee?" I. T. R. C. No. 618 of 1998 : This reference is again at the instance of the Revenue. This is for the assessment year 1978-79. The facts as narrated in the reference are; The assessee claimed allowance for the following liabilities; ------------------------------------------------------------ Rs. (i) Additional liability for gratuity in respect 32,66,475 of the year 1977 as a result of actuarial valuation. (ii) Provision for gratuity for 1976 based on 18,34,913 actuarial valuation made in the accounts for 1976 disallowed in the assessment year 1977-78 now claimed (paid over to the MICO gratuity trust during 1977) (iii) Provision for gratuity for prior years based 14,84,649 on actuarial valuation made in the accounts for 1971 disallowed in the....
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.... Sri Dastur, learned senior counsel invites our attention to the material facts to say that the Tribunal is wrong in the case on hand. He would refer to us section 40A(7)(b) of the Act to say that no deduction shall be allowed in respect of any provision made by the assessee to its employees. Clause (b) would say that nothing contained in clause (a) would apply in relation to inter alia any provision made by the assessee for the purpose of payment of a sum by way of any gratuity that has become payable during the previous year. He would say that a sum of Rs. 32,66,475 represents the assessee's liability for making a contribution to the approved gratuity fund in respect of services rendered by the employees in the calendar year 1977 determined on an actuarial basis. Learned counsel further says that in the light of section 40A(7)(b), the assessee's claims ought to have been allowed by the Tribunal. He would also say that this very Tribunal for the subsequent assessment year has accepted the case of the assessee. In so far as the second question at the instance of the Revenue is concerned, Sri Dastur learned counsel would argue that the assessee had provided for a sum of Rs. 18,3....
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.... gratuity to his employees on their retirement or on termination of their employment for any reason." The admitted facts would reveal that in I. T. R. C. No. 617 of 1998, the Tribunal ruled that a sum of Rs. 32,66,475 is allowable under section 40A(7)(a) of the Act. In so far as I. T. R. C. No. 618 of 1998 is concerned, the Tribunal ruled that a sum of Rs. 32,66,475 is in the nature of provision and the same is allowable under section 40A of the Act. A reading of section 40A would show that certain payments were not deductible in certain circumstances. A reading of section 40A(1) would show that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act, relating to the computation of income under the head "Profits and gains or business in profession". Section 40A(7)(a) is subject to section 40A(7)(b). Section 40A(7)(a) would not apply in certain circumstances. Those circumstances have been mentioned in the provision itself. It states that clause (a) of section 40A(7) shall not apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards a....
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....s entitled for deduction on the facts of this case. In these circumstances, we deem it proper to answer the gratuity question in favour of the assessee. One other question that has been referred to us in I. T. R. C. No. 617 of 1998 is with reference to the exchange gain earned by the assessee on the facts of this case. From the material on record it is seen that a sum of Rs. 19,22,076 was available to the assessee on account of fluctuation of foreign exchange in the course of export made by the assessee. The Assessing Officer held against the assessee. On appeal, the Commissioner accepted the case of the assessee. The Tribunal accepted the findings of the Assessing Officer by reversing the order of the Appellate Commissioner. The assessee strongly relies on the judgment of the Calcutta High Court reported in Indo-Burma Petroleum Co. Ltd. v. CIT [1982] 136 ITR 251, wherein it is ruled that where a surplus arises due to a fluctuation in the exchange rate, the true test to find out if such surplus is assessable is to find out if it arose out of any trading activity. It must be a result of a trading activity of the assessee or it must arise or result from the trading activity of ....