TaxTMI 
TaxTMI 
1985 (10) TMI 11
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....th the assessment year 1970-71, previous year having ended on June 30, 1969. Three questions have been referred under section 256(1) of the Income-tax Act, 1961 (hereinafter called "the Act"), for our opinion. They are as under : "(1) Whether, on the facts and in the circumstances of the case, the decision of the Tribunal that the payment of Rs. 15,000 to the gratuity fund was allowable under section 28 of the Income-tax Act, 1961, being loss incidental to the business, or on the ground of commercial expediency was right in law ? (2) Whether the amount of Rs. 20,059 in respect of the contribution to provident fund is an allowable deduction under section 28 or 37 of the Income-tax Act, 1961 ? (3) Whether, on the facts and in the ....
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....the Tribunal sought a reference as formulated in questions Nos. (2) and (3) above. In the case of CIT v. Chhotabhai Jethabhai Patel Tobacco Products 1981] 128 ITR 702 (Guj ), the facts disclosed that the assessee was carrying on business as sole distributors of a firm's products from July 1, 1962. For the assessment year 1966-67, the assessee claimed a deduction of Rs. 32,245 out of the contribution of Rs. 58,871 made to the provident fund relating to the period prior to July 1, 1965, which was the date of recognition of the provident fund. The Tribunal upheld that claim for deduction of the provident fund contribution under section 37 of the Act. The assessee-company also made gratuity payments during the assessment year 1966-67 to the ....
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....ions. As a natural corollary, the interest amount must also be deductible. In the case of Nagri Mills Co. Ltd. v. CIT [1981] 131 ITR 257 (Guj), the assessee-company carried on business of textile manufacturing and maintained its books of account on the mercantile system of accounting. It was a party to an industrial dispute which resulted in an award made by the Industrial Court in 1957, which became effective from September, 1957. Under the award, gratuity was payable to the employees of the assessee-company according to the scale and subject to the conditions therein laid down. The assessee paid gratuity under the award to its employees and debited the amount in its books of account and claimed deduction. After filing its returns for t....
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....to deduct the same while calculating the profits and gains from business or under section 37 on the ground of commercial expediency". In either view, therefore, the assessee was entitled to deduct the amount of provident fund and gratuity paid to the employees from the total income assessable to tax. As a natural corollary, the assessee would also be entitled to deduct the interest paid on the provident fund amount either under section 28 or under section 27 of the Act. For the above reasons, we answer all the three questions in the affirmative, that is, in favour of the assessee and against the Revenue. The reference stands disposed of accordingly with no order as to costs. Re: Income-tax Application No. 12 of 1977: While making the ....