1997 (11) TMI 55

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....tum of goodwill, the Assistant Controller of Estate Duty rejected the claim for reduction in respect of the gratuity liability. In appeal, the Appellate Controller of Estate Duty, Madras, held that the provision for gratuity is a statutory liability and therefore, it is an allowable deduction while computing the goodwill. But in appeal the Income-tax Appellate Tribunal held that the provision for gratuity being a contingent liability cannot be deducted while computing the value of the goodwill. The Tribunal disallowed the prayer for reference and the reference case is before us as a result of the compelling reference. The questions referred to us for decision are as follows : "(i) Whether, on the facts and in the circumstances of the ca....

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..... A. No. 15 (Coch.) of 1985, dated August 29, 1989, held that the gratuity liability being a contingent liability cannot be deducted. Therefore, the Tribunal found that the Appellate Controller was not justified in directing the Assistant Controller of Estate Duty to allow the provision for gratuity while computing the value of goodwill. The accountable person is really aggrieved by the finding of the Tribunal as aforesaid. Counsel for the applicant brings to our notice the decision of the Madras High Court in CWT v. S. Ram [19841 147 ITR 278. The above decision was relied upon by the Appellate Controller. What is laid down in the aforesaid decision is this : "Payment of gratuity, from the point of view of the liability to a workman may ....

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....tion, it is taken out of the purview of contingent liability and will be placed in the category of known and existing liability... provision for payment of gratuity made on the basis of actuarial valuation is an existing liability and that it is a liability in praesenti, though the payment of the said amount is at a future date." Therefore, one of the requirements for applying this dictum is whether there was a provision for payment of gratuity made on the basis of actuarial valuation. As far as the present case is concerned, the Appellate Controller has applied the dictum laid down by the Madras High Court in CWT v. S. Ram [19841 147 ITR 278. The above decision was applied only on the assumption that there was an actuarial valuation in t....