Kerala High Court
Travancore Rayons Ltd. vs Commissioner Of Income-Tax on 25 February, 1991
Equivalent citations: [1991]191ITR121(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. At the instance of an assessee to income-tax, the Appellate Tribunal has referred the following question of law for the decision of this court:
"Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the appellant is entitled to deduct only the sum of Rs. 2,18,646 as fixed by the Appellate Assistant Commissioner in his earlier order of September 12, 1974, and is not entitled to deduct the whole amount of gratuity liability computed in accordance with the directions of the Appellate Tribunal in I, T. A. No. 368/Coch/74-75 ?"
2. The respondent is the Revenue. We are concerned with the assessment year 1971-72. The accounting year is the calendar year 1970. Before the Income-tax Officer, the assessee claimed deduction of a sum of Rs. 7.03 lakhs towards the liability to pay gratuity under the Kerala Payment of Gratuity Act. The Income-tax Officer disallowed the claim. In appeal, on the basis of actuarial valuation, the assessee restricted the claim in the sum of Rs. 2,18,646. A sum of Rs. 49,566 had already been allowed as payment on cash basis. In the appeal, the Appellate Assistant Commissioner accepted the plea of the assessee and held that the claim on the basis of actuarial valuation in the sum of Rs. 2,18,646 is allowable and directed the Income-tax Officer to allow the balance of Rs. 1,69,080 over and above the sum of Rs. 49,566 already allowed on cash basis. The Department carried the matter by way of appeal before the Income-tax Appellate Tribunal in I. T. A. No. 368/Coch/74-75. Regarding the acceptance of the claim of the assessee for payment of gratuity on actuarial basis, the Revenue advanced two pleas : (1) Having claimed deduction for payment of gratuity on actual payment basis, it was not open to the assessee to advance a further claim for the same item of expenditure on another basis (additional sum of Rs. 1,69,080 claimed and allowed on actuarial basis). (2) The actuarial valuation has taken into account future increments and so, to that extent, the figures furnished are wrong.
3. The Income-tax Appellate Tribunal, by its order dated January 18, 1977, held that (1) since the statutory liability to pay gratuity arose only during the relevant accounting period from 1970-71 onwards, the claim on accrual basis was justified. For the prior years, in the absence of a gratuity scheme, when payments were actually made, deduction was claimed and, on that basis, the allowance on account of cash payment for the year was justified. So, in view of the peculiar circumstances for the assessment year 1971-72, the payment made on cash basis as also the claim based on actuarial valuation are both permissible. (2) It was common ground that, in the actuarial valuation furnished, future increments were taken into account. The Tribunal held that future increments have no place and the actuarial valuation should be made afresh without taking into account the future increments.
4. After the remit, a fresh working of the liability was furnished to the Income-tax Officer. According to the fresh working, the gratuity liability would be Rs. 3,85,010. The Income-tax Officer held that the claim up to the sum of Rs. 2,18,646, actually allowed by the Appellate Assistant Commissioner in his order dated September 12, 1974, alone was permissible. In appeal, the Appellate Assistant Commissioner reversed the said decision by his order dated May 31, 1978, and held that the assessee is entitled to a further sum of Rs. 1,66,364 over and above the total sum allowed by the Appellate Assistant Commissioner on actuarial valuation, by his order dated September 12, 1974, in the sum of Rs. 2,18,646. The Revenue filed an appeal before the Appellate Tribunal and assailed the order passed by the Appellate Assistant Commissioner granting a further relief in the sum of Rs. 1,66,364 which was not covered by the earlier order of the Appellate Assistant Commissioner. The Appellate Tribunal, after adverting to its earlier orders, held that the Appellate Assistant Commissioner was in error in granting a further relief of Rs. 1,66,364 and in affording this further relief, the Appellate Assistant Commissioner had exceeded his jurisdiction. It is thereafter at the instance of the assessee, that the question of law formulated hereinabove has been referred by the Income-tax Appellate Tribunal for the decision of this court.
5. We heard counsel for the assessee, Menon and Pai, as also counsel for the Revenue, Mr. P. K. R. Menon. It is common ground that the assessee originally claimed a sum of Rs. 7.03 lakhs on account of liability to pay gratuity. But, the Income-tax Officer allowed only a sum of Rs. 49,566, since it was the actual amount paid by way of gratuity. In the appeal filed before the Appellate Assistant Commissioner, the assessee gave an actuarial valuation of the liability, which worked out to Rs. 2,18,646. The Appellate Assistant Commissioner, by his order dated September 12, 1974, accepted the plea of the assessee regarding the deduction for gratuity payment and in view of the fact that a sum of Rs. 49,566 has already been allowed, directed the Income-tax Officer to allow the balance amount of Rs. 1,69,080. This order passed by the Appellate Assistant Commissioner dated September 12, 1974, was taken in appeal by the Revenue. The assessee was not aggrieved by the said order. It did not file an appeal or a cross-appeal before the Income-tax Appellate Tribunal. Before the Appellate Tribunal, it was common ground that the actuarial valuation furnished by the assessee took into account future increments. The Appellate Tribunal held that it was an error and that future increments have no place. After so stating the law, the Appellate Tribunal directed that the actuarial valuation should be made afresh. In other words, a fair reading of the appellate order (paragraph 4) clearly indicates that what the Tribunal directed was a reworking of the figure of the gratuity liability on actuarial valuation after excluding the future increments. In the present appeal, the Appellate Tribunal has, by its order dated October 10, 1980, stated that, by the earlier order of remit dated January 18, 1977, they had only directed a reworking of the figure and not a wholesale remit of the matter.
6. Counsel for the assessee very vehemently contended that the Tribunal was in error in holding that, by their earlier order dated January 18, 1977, what was directed to be done was only a reworking of the actual figure. It was submitted that the earlier order was a complete remit of the matter and if, after the remit, it was found that the assessee is entitled to more relief, that should have been afforded to the assessee. We are of the view that this plea is without substance. As stated, it is common ground that, on the basis of the actuarial valuation furnished by the assessee, the Appellate Assistant Commissioner, by his order dated September 12, 1974, allowed the entire liability to pay gratuity in the sum of Rs. 2,18,646. The Appellate Assistant Commissioner further held that since a sum of Rs. 49,566 was allowed on cash basis, the assessee is entitled to a further relief for the balance amount of Rs. 1,69,080. The assessee was not aggrieved by the said order. The assessee did not carry the matter in appeal; nor did it file a cross-objection in the appeal filed by the Revenue. In other words, the assessee was satisfied with the allowance of Rs. 2,18,646, on account of liability to pay gratuity. It was the Revenue which was aggrieved by the order of the Appellate Assistant Commissioner aforesaid. Before the Appellate Tribunal, it was common ground that, in working out the actuarial valuation, the figures furnished were wrong, in that, future increments were taken into account. The Tribunal held that future increments could not be taken into account and in order to work out the figures excluding the future increments, a reworking of the actuarial valuation was ordered. Paragraph 4 of the order of the Appellate Tribunal dated January 18, 1977, is clear on this. It is not a case where the Appellate Tribunal set aside the order of the Appellate Assistant Commissioner in toto and ordered a remit or directed that the entire matter may be investigated and adjudicated again. What was ordered by the Appellate Tribunal was to effect an appropriate modification in the actuarial valuation already arrived at by excluding future increments. In such circumstances, it was not open to the assessee to claim a higher sum by way of a fresh working. After the remit by the Appellate Tribunal, as per the fresh working, the liability was arrived at in the sum of Rs. 3,85,010 which was in excess of Rs. 1,66,364 over the claim, originally allowed by the Appellate Assistant Commissioner and which was acquiesced in by the assessee. The Appellate Tribunal did not order a remit or reappraisal of the entire matter, but only directed the reworking of the actuarial valuation by excluding the future increments, This is clear from the order of the Appellate Tribunal dated January 18, 1977, paragraph 4 thereof. It has been so said by the Appellate Tribunal in the present appellate order dated October 10, 1980. The Appellate Tribunal was justified in holding, that, by its earlier order dated January 18, 1977, what was directed was only a reworking of the figures, by excluding the future increments. We see no error either in the reasoning or in the conclusion of the Appellate Tribunal aforesaid.
7. In the light of our above discussion, we answer the question referred to this court by the Income-tax Appellate Tribunal, in the affirmative, against the assessee and in favour of the Revenue, and further hold that the assessee is not entitled to deduct the whole amount of gratuity liability as claimed by it. It is only entitled to deduction of a sum of Rs. 2,18,646 which was allowed by the Appellate Assistant Commissioner by his order dated September 12, 1974. The said order has become final and conclusive and the assessee cannot, in view of the nature of the appellate order, claim a further sum of Rs. 1,66,364.
8. The reference is answered as above.
9. A copy of this judgment, under the seal of this court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.