Commissioner of Income Tax vs Electric Construction and Equipment Co. Ltd.

Seth, J.—This is an application u/s 256(2) of the income tax Act, 1961 by the Commissioner praying that this Court direct the Tribunal to state a case and refer the following question of law for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was correct in law in setting aside the assessment restoring the matter to the file of the Commissioner (Appeals) following then earlier order for the assessment year 1974-75 which has not been accepted by the department ?"

The assessment pertains to the year 1977-78. The assessee, on the basis of actuarial valuation, claimed a sum of Rs. 1,22,874 as representing the increase on account of the provision for gratuity during the relevant year. The ITO rejected this claim on the basis of his earlier order for the assessment year 1974-75. He opined that in accordance with the decision in the assessment year 1974-75, the provision for gratuity could be allowed only if the assessee fulfilled the conditions laid down in section 40A(7) of the Act and since these conditions had not been fulfilled in the present year, the assessee was not entitled to the deduction.

On appeal, the Commissioner (Appeals) upheld the order of the ITO following the earlier appellate order for the assessment year 1974-75.

On further appeal by the assessee to the Tribunal, the Tribunal observed as follows:

"At the hearing, it was an admitted position that the aforesaid earlier order of the Commissioner (Appeals) for assessment year 1974-75 was the subject matter of appeal before the Tribunal (Delhi Bench ''B'' New Delhi) in IT Appeal No. 2703 (Delhi) of 1982 and C.O. No. 240 (Delhi) of 1982 decided on 10-1-1984, the factual position in the year under consideration is somewhat similar to that which came up for consideration of the Tribunal in its aforesaid earlier order. The arguments canvassed by the parties are on the same lines, which were canvassed before the Tribunal on the earlier occasion. We have perused the aforesaid earlier order of the Tribunal. For the reasons stated therein, with which we agree, we set aside the order of the Commissioner (Appeals) on the point at issue and restore the same to his file for deciding this issue afresh in accordance with law and the directions contained in para 9 of the aforesaid earlier order of the Tribunal. For statistical purposes, the appeal by the assessee is allowed."

Since the Tribunal has referred to paragraph 9 of the order dated 10-1-1984 passed by the Tribunal for the assessment year 1974-75, we reproduce the whole paragraph 9 which reads:

"In the case of the assessee, the liability is claimed to be based on actuarial valuation and is on scientific basis and is claimed to be payable to employees of the assessee since gratuity has become payable during the previous year relevant to the assessment year under appeal in lieu of employees who were on the rolls of the assessee company for that period and the said provision is made, as an ascertained liability and payable gratuity on the basis of a scheme of gratuity claimed to be in force with the assessee-company, qua its employees, and in this view of the matter, within the meaning of section 40A(7)(b)(i) the liability being related to the accounting period relevant to the assessment year under appeal is allowable since what is subject-matter of assessment is the real profits of the accounting period and in working out the said real profits and the real income the secured and ascertained liability in terms of gratuity payable in relation to the assessment year under appeal is deductible. We hold accordingly. However, since the details of work-out and the details of the gratuity scheme are not made available to us, as of necessity, we restore the issue to the file of the learned first appellate authority with the directions that the claim be examined and allowed accordingly, after calling for, from the assessee the details of the scheme and the details of the workout. The assessing officer will also be given an opportunity of being heard. In coming to this conclusion we have derived the desired support from the ratio of the decision of the Hon''ble Supreme Court as mentioned above and that of the Hon''ble Madras High Court in the case of Commissioner of Income Tax, Tamil Nadu-V Vs. Sitalakshmi Mills Ltd., . Commissioner of Income Tax Vs. Andhra Prabha P. Ltd., is also on the point and supports the assessee. Order dated 24th October, 1981 made in IT Appeal No. 684 (Ahd.) of 1980 of the C-Bench of the income tax Appellate Tribunal, Ahmedabad Benches at Ahmedabad in the case of income tax Officer v. Illa Ltd. (Item 35) page 297-Selected Orders of the income tax Appellate Tribunal lends support to the view we have taken above. On this issue, the assessee succeeds, for statistical purposes."

There is no dispute that for the assessment year 1974-75, the Tribunal referred the following question of law for the opinion of this Court:

"Whether on the facts and in the circumstances of the case, the income tax Appellate Tribunal was correct in law in referring the matter regarding the gratuity to the file of the Commissioner (Appeals) by ignoring the material fact that none of the conditions specified u/s 40A(7)(b)(ii) were fulfilled by the assessee-company ?"

In view of the facts and circumstances mentioned above, we direct the Tribunal to draw up a statement of case and refer the question as sought for and indicated above, for the opinion of this Court.

Consequently, the application is allowed. However, we make no order as to costs.