Kothari Sugars and Chemicals Ltd. vs Commissioner of Income Tax

K.A. Thanikkachalam, J.

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in allowing the claim to the extent of Rs. 66,482

only out of Rs. 7,14,317 being a claim towards liability in accordance with actuarial valuation for the assessment year 1975-76 ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in rejecting the claim of the assessee for

development rebate of Rs. 14,40,468 for the assessment year 1974-75 ?

So far as question No. 1 is concerned, it is a matter of record that no provision was made in the accounts. This finding of fact by the Appellate

Assistant Commissioner was not disputed before the Tribunal. Section 40A(7) of the Act bars the deduction of any liability towards gratuity unless,

of course, the conditions mentioned in either of the sub-clauses u/s 40A(7)(b) of the Act are satisfied. In both these sub-clauses, the requirements

are that there should be a provision and that there should be a pre-existing fund. According to the facts, there is no provision in the accounts.

Hence, the question whether it falls under Sub-clause (1) or (2) of Clause (b) of Sub-section (7) of Section 40A, is only academic in this case. The

Tribunal also noted that there is no irretrievable loss to the assessee on account of this finding because the amount is allowable as soon as the

provision is made for payment to an approved gratuity fund in a later year or on actual payment u/s 36(1)(v) of the Act. As far as the alternative

ground is concerned, the Tribunal held that there is no justification for disallowance of Rs. 66,482 which was a premium paid to cover the liability

of the assessee towards gratuity for retiring or dismissed employees. The fact that the insurance policy was subsequently discontinued is entirely

irrelevant. The liability, if any, arising during the accounting year, is fully covered by the payment of the premium and for this reason, it is allowable

as a deduction u/s 37 of the Act though it may be considered even u/s 36(1)(v) of the Act. The Tribunal, therefore, directed the relief to the extent

of Rs, 66,482, Inasmuch as the provisions were not made and inasmuch as the deduction can be allowed as and when payment was made to an

approved gratuity fund in later years or on actual payment u/s 36(1)(v) of the Act, the assessee is entitled to deduction of the premium paid to

cover the liability of the assessee towards gratuity to the extent of Rs. 66,482. For the balance of the amount, there is no evidence to show that

provision was made or actually paid. Therefore, the Tribunal was correct in allowing deduction to the extent of Rs. 66,482.

In so far as question No. 2 is concerned, that was not pressed by learned counsel for the assessee inasmuch as T. C. No. 172 of 1977 relating

to the assessment year 1969-70 was withdrawn on June 16, 1980. In view of the fact that the development rebate was granted earlier, the

assessee is not entitled to claim development rebate in the assessment year 1974-75. In view of the foregoing reasons, we answer the questions

referred to us in the affirmative and against the assessee. No costs.