Addl. Commissioner of Income Tax vs Bengal Salt Co. Ltd.

Sabyasachi Mukharji, J.—The statement of the case relates to the assessment year 1969-70 and the question which has been referred to us is as follows :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing the claim of the assessee for Rs. 31,698 u/s 37(1) of the income tax Act, 1961, relating to the assessment year 1969-70?

The assessee is a limited company in which it was stated that the Government of West Bengal had substantial shares. During the accounting year under reference, the assessee claimed expenses in respect of contribution to gratuity fund for Rs. 31,698. The ITO rejected this claim on the ground that the claim was inadmissible in view of the provisions of section 36(1) (v) of the income tax Act, 1961 (''the Act''). The ITO held that the claim could not be made u/s 37(1) of the Act.

The assessee appealed before the AAC. The AAC confirmed the view taken by the ITO. He, however, allowed the claim of the assessee to the extent of Rs. 4,047 because this claim was with reference to the year 1968. The assessee earned the matter further.

Before the Tribunal it was argued on behalf of the assessee that the AAC wrongly appreciated the decision of the Supreme Court in the case of Metal Box Company of India Ltd. Vs. Their Workmen, and certain other observations were referred. The Tribunal considered the various terms of the trust deed and held that the expenditure could be allowed u/s 37(1) Upon this, the question as indicated above has been referred to us.

The question that was argued before us was whether in a case where the assessee has created a gratuity fund where the assessee had neither any liability, contractual or statutory to pay gratuity, but as a prudent businessman he has created such a fund even taking into consideration the past liability for payment of gratuity and where the estimated past liability was not disputed though not actually made, could be allowed u/s 37 in spite of section 36. The assessee''s case was that the assessee had applied to the Commissioner for approval of the fund long ago but till the time of the hearing of the appeal by the Tribunal, the fund had not been recognised. It has been brought to our notice that on 23-4-1977 in respect of the said application which was made to the Commissioner, he has passed an order giving approval to ''Bengal Salt Company Gratuity Fund'' constituted under the trust deed dated 28-8-1970 as modified by the deed of variation dated 8-3-1977. It was further stated in the order that the approval of the fund maintained by the company would take effect from 12-9-1969 and shall be subject to any conditions to be imposed in future in the light of changes in the income tax law and rules. In view of the fact that retrospective recognition of the trust fund has been given, it appears to us prima facie that subject to the fulfilment of those conditions, the assessee should have been exempted u/s 36(1) (v). Therefore, instead of entering into theoretical discussion on this point on theoretical assumption, it would be advisable to send the matter back to the Tribunal to reconsider the matter in the light of the certificate of recognition granted on 23-4-1977 with retrospective effect to the trust fund and consider the matter afresh and dispose of the matter in accordance with law. In the facts and circumstances of the case, the parties will pay and bear their own costs.

Sen, J. - I agree.