1982 (12) TMI 46

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....able on certain events happening, such as the employee's retirement, resignation, retrenchment or death. In this sense, the liability is said to be a "contingent liability ". But owing to modern systems of actuarial valuation, it would be possible to ascertain the, present discounted value of the employer's commitment to pay gratuity to his entire labour force as and when the time comes. This value, if ascertained on actuarial basis, would be progressively increasing every year, even if the strength of the workmen and staff remains constant. As between one year and the next, the figure of discounted value would register an increase. This actuarial increase is often called " incremental value ". According to sound principles of commercial ac....

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....ts liability under the gratuity scheme. We, therefore, hold that the provision made was rightly allowed by the Tribunal as a deduction in the computation of the business income of the concerned account year of the respective assessees. We, however, wish to correct an error in the Tribunal's order. The Tribunal observed that the allowance on account of provision for gratuity must be granted to the assessees under s. 37 of the I.T. Act, 1961. This is mistaken view of s. 37. This section is a residuary provision for the allowance of business expenditure in the computation of taxable business profits. In terms, this section deals with an expenditure " incurred " or " laid out " by the assessee. A provision for gratuity, although it has to be....

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....n doing so. For, s. 28 does not provide for any allowances or deductions. Not a word is said about deductions or allowances, or even about the computation of business profits, in s. 28. In our view, it is quite unnecessary for us to seek a statutory basis for everything connected with income or everything concerned with the computation of taxable income. It is enough that we are able to find a given deduction as warranted by sound principles of commercial accounting, if they do not fall under, or are prohibited by, any of the express provisions relating to business deductions. That is why, following the English scheme of taxation on business income, our courts sometimes observe that all legitimate business expenses, unless prohibited by the....