Gujarat High Court
Commissioner Of Income-Tax vs Shri Yamuna Mills Company Limited on 13 October, 1993
Equivalent citations: [1995]215ITR153(GUJ)
Author: M.B. Shah
Bench: J.M. Panchal, M.B. Shah
JUDGMENT
M.B. Shah J.
1. At the instance of the Revenue, the Income-tax Appellate Tribunal ("the Tribunal", for short) has referred the following questions for our opinion :
"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in confirming the order of the Appellate Assistant Commissioner to allow the deduction of Rs. 20,00,000 being the amount transferred to the gratuity fund approved by the Commissioner of Income-tax as against Rs. 2,73,711 allowed by the Income-tax Officer ?
2. Whether the assessee is entitled to the allowance of Rs. 20,88,000 being the actual amount transferred to the fund approved by the Commissioner of Income-tax or for an amount of Rs. 2,73,711 being the liability for the calendar year 1973 according to the actuarial valuation report ?
3. Whether on a plain reading of section 155(13) read with section 40A(7) of the Income-tax Act, 1961, past liability in respect of provision for gratuity has to be taken into account if the conditions under section 40A(7) are fulfilled ?"
2. The aforesaid question of law arise in the background of the following facts :
3. The assessment was finalised on February 15, 1977, on the total income of Rs. 11,36,320 of the assessee, Shri Yamuna Mills Company Ltd., Baroda. The total income of the assessee included provision for gratuity of Rs. 23 lakhs. After the assessment was finalised, the assessee, by its application dated March 30, 1977, applied for rectification under section 155(13) of the Income-tax Act, 1961, on the ground that the assessee had fulfilled the conditions laid down under section 40A(7) of the Income-tax Act. The Income-tax Officer took the view that only the incremental liability of gratuity relating to the calendar year, 1973, could be allowed and that the liability of the assessee for the earlier years could not be allowed. The liability for the calendar year, 1973, according to the actuarial valuation report was Rs. 2,73,711. The Income-tax Officer allowed deduction of the said amount from the total income of the assessee. The Assistant Commissioner of Income-tax observed that the assessee duly transferred the actual amount of Rs. 20,88,000 to the fund approved by the Commissioner of Income-tax and produced the necessary evidence in support thereof before the Income-tax Officer. The Assistant Commissioner of Income-tax was satisfied that the assessee had fulfilled all the conditions stipulated in section 40A(7)(b)(ii). The Assistant Commissioner of Income-tax took the view that in the normal course, it was unnecessary to go into the question of "incremental liability". He, however, went into that question and held that not only the provision for any particular previous year would be covered by section 40A(7) but also provision made for earlier years would be covered, subject to the condition that the provision was made in accordance with actuarial valuation of the ascertainable liability. The Assistant Commissioner of Income-tax directed the Income-tax Officer to allow a deduction for Rs. 20,88,000 as against Rs. 2,73,711 allowed by the Income-tax Officer and as against Rs. 23 lakhs claimed by the assessee. It is pointed out that, although the assessee claimed Rs. 23 lakhs before the Income-tax Officer, the claim was confined to Rs. 20,88,000 in appeal before the Assistant Commissioner of Income-tax.
4. Against that order, the Revenue filed an appeal before the Income-tax Appellate Tribunal, Ahmedabad. The Tribunal dismissed the appeal filed by the Revenue and confirmed the order of the Appellate Assistant Commissioner. In view of the order dated December 29, 1980, in Income-tax Application No. 104 of 1980 passed by the Tribunal, at the instance of the Revenue, the aforesaid questions are referred for our opinion.
5. In Income-tax Reference No. 302 of 1981 - CIT v. Petlad Turkey Red Dye Works Co. Ltd. [1995] 212 ITR 453, decided on October 4, 1993, we have dealt with a similar contention and upheld the order passed by the Tribunal. Considering Explanation 1 to section 40A(7)(b)(ii), we have held that the outer limit of eight and one-third per cent. is for each employee and is in respect of each year of his service for which the provision is made by the assessee. Hence, it cannot be said that the order passed by the Tribunal confirming the order passed by the Appellate Assistant Commissioner is in any way erroneous.
6. In the result, questions Nos. 1, 2 and 3 are answered in the affirmative, i.e., in favour of the assessee and against the Revenue. The reference stands disposed of accordingly with no order as to costs.