TaxTMI 
TaxTMI 
1995 (3) TMI 125
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.... 1976 disallowed in assessment year 1977-78 now claimed (paid over to the MICO Gratuity Trust during 1977) Rs. 18,34,913 (iii) Provision for gratuity for prior years 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) Rs. 14,84,649 3 (a). It is required to be mentioned in this connection that there was further claim of the assessee towards premium paid to Life Insurance Corporation of India for 1977 under the Group Gratuity Life Insurance Scheme of Rs. 20,99,141 which was allowed by the AO himself. There ....
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....)(i). 3(e). Learned counsel for the assessee, Shri S.E. Dastur has, on the other hand, filed before us the calculation of total liability towards gratuity arising during the year under consideration as per the actuarial valuation. He contends that the total liability in this regard is Rs. 53,65,616 out of which Rs. 20,99,141 has been allowed by the AO himself by way of premium paid to LIC under the Group Gratuity Life Insurance Scheme. He, therefore, claimed that the balance amount of Rs. 32,66,475 also forming the liability for this year should be allowed. 3(f). On a careful reading of the decision of the Supreme Court in the case of Shree Sajjan Mills Ltd., we find that the following propositions have been laid down therein : (i) Whatever is provided for future use by the assessee out of the gross profits of the year of account for payment of gratuity to employees is to be considered as ' provision made by the assessee ' and the expression ' need not be ' restricted to its usage in the artificial sense, viz., of setting apart specifically an amount by the assessee for meeting the liability for gratuity in the account books. This means that if the liability towards gratui....
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....detailed calculation of the gratuity liability, a reference to which has already been made. According to this calculation, the total monthly wages in respect of 9103 employees of the assessee for the year under consideration was Rs. 63,39,714. The total amount of gratuity liability according to actuarial valuation was, on the other hand, arrived at Rs. 53,65,615. Shri Dastur, learned counsel for the assessee, contended that this amount falls well within the limit of 8-1/3% of the total wages payable to the employees as per rule 103 and the said limit has not been exceeded. He relied on the following decisions in support of his claim that even though the limit as above was exceeded, there cannot be any disallowance of the amount to be contributed to the gratuity fund as long as the fund remains approved by the CIT : (i) CIT v. Eastern Equipment & Sales Ltd. [1993] 201 ITR 858 (Cal.) (ii) CIT v. Super Spinning Mills Ltd. [1987] 166 ITR 518 at page 524 (AP) (According to this decision, for the purpose of computing contribution to be made to the gratuity fund at the rate of 8-1/3% of the salary, the salary should include dearness allowance). (iii) Super Spinning Mills Ltd. ....
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.... the approved gratuity fund in the near future shall be restored as disallowed. 4. So far as the other two amounts at para 3(ii) and (iii) above, being Rs. 18,34,913 and Rs. 14,84,649 are concerned, the undisputed facts are that the amounts were contributed to the approved gratuity fund of the assessee in this year. The AO made the disallowance of these two amounts in the assessment order simply on the ground that the liability in respect of these two amounts cannot be considered to have arisen in the year 1977 corresponding to assessment year 1978-79. The CIT(A), on the other hand, held that the actual payments made by the assessee to the gratuity trust on the basis of the actuarial valuation during the previous year, viz., the calendar year 1977 is to be allowed as a deduction. Accordingly, he allowed both the amounts. The learned departmental representative has strongly objected to this allowance by arguing that the question of allowability of gratuity liability is solely guided by the provisions of section 40A(7) as decided by the Supreme Court in the case of Shree Sajjan Mills Ltd. He also relies on the two decisions of Kerala High Court in the case of CIT v. Travancore Cem....
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.... 36(1)(v) without any further reference to section 40A(7). 4(b). In the case of Mysore Tobacco Co. Ltd v. CIT [1978] 115 ITR 698 (Kar.), no trust or fund was created earlier and no provision was made for liability and no provision was furthermore claimed as allowable deduction in earlier years. Amounts actually paid out in each year used to be claimed and allowed as deduction. The assessee made actuarial valuation of its total gratuity liability as on 31-3-1971 and claimed the same as deduction in assessment year 1971-72. The ITO allowed only the difference between actuarial valuations as on 31-3-1970 and 31-3-1971. The Karnataka High Court held in that case that an expenditure which could be claimed as a deduction in any assessment year should have been incurred in the relevant accounting year. Therefore, if the expenditure of an earlier year is taken into account in a later year the true profits of the later year, cannot be determined and the result would be lopsided and unreal. With regard to this particular decision of the Karnataka High Court, we agree with the arguments of Shri Dastur that in the instant case, the amounts have simply not been claimed on the basis of liabil....