Commissioner of Income Tax vs Haileburia Tea Estates Ltd.

T. Kochu Thommen, J.—The following question has been, at the instance of the Revenue, referred to us by the Income Tax Appellate Tribunal, Cochin Bench, in terms of Section 256(1) of the Income Tax Act, 1961.

"Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim ''the balance'' gratuity u/s 40A(7)(b)(ii) of the Income Tax Act in the assessment year 1975-76 ?"

The assessee which is a limited company made a provision in its books of account towards payment of gratuity for the previous year relevant to each of the assessment years 1973-74, 1974-75 and 1975-76. After the Income Tax Act, 1961, was amended by the Finance Act, 1975, introducing Section 40A(7), the Income Tax Officer, by proceedings u/s 155(13) read with Section 154, allowed in part the deductions claimed by the assessee on the basis of the provision made towards payment of gratuity for each of the assessment years 1973-74 and 1974-75. Although the claim of the assessee for these two years was admitted only in part, those two rectification orders remained unchallenged. For the assessment year 1975-76 relevant to the accounting year ending December 31, 1974, the assessment was completed after the Officer allowed deduction of a sum of Rs. 93,398.84 which he considered to represent the provision relating to that accounting year. The Officer further allowed deduction of a sum of Rs. 85,040.67 being the amount actually paid by the assessee towards gratuity in respect of that year. The Officer, however, disallowed the assessee''s claim to deduct a total sum of Rs. 6,99,188 representing what was provided for all the earlier years.

The assessee challenged the order on the ground that the Officer ought to have allowed its claim for not only the year in question, but also the earlier years. The Appellate Assistant Commissioner held that the assessee was entitled to deduction of Rs. 6,99,188 for the accounting year relevant to the assessment year 1975-76. On appeal by the Revenue, the Tribunal held that the Appellate Assistant Commissioner went wrong in not taking into account the fact that the assessee had been allowed deductions by the assessing officer for the assessment years 1973-74 and 1974-75 in the sums of Rs. 59,389 and Rs. 68,154, respectively, and the Appellate Assistant Commissioner ought to have allowed deduction only for the balance gratuity provided for in respect of the years in question. The Tribunal held that the total amount of Rs. 6,99,188 claimed by the asses-see represented what was provided for the three accounting years in question, i.e., 1972-73 to 1974-75, and that after taking into account what had been already allowed in the earlier orders of the Officer, the assessee was entitled to deduction of the balance gratuity amount.

In the absence of a specific question concerning the finding of the Tribunal regarding the quantum of the provision made for each of the assessment years 1973-74 to 1975-76, it is not, and cannot be, disputed by the Revenue that Rs. 6,99,188 represents what the assessee had provided for payment of gratuity for the accounting years 1972-73 to 1974-75. The question, however, is whether the Tribunal was justified in allowing deduction for the years other than the accounting year relevant to the assessment year in question. We have already held in Commissioner of Income Tax Vs. G.T.N. Textiles Limited, , that it cannot be done. We had stated with reference to Section 40A(7)(b)(ii) (p. 9):

"The case of the assessee, however, is that in so far as provision had been made in the accounting year 1973-74, it is entitled to claim deduction in terms of Sub-clause (ii), that is, in accordance with and subject to the conditions mentioned thereunder. To derive the advantage of that sub-clause in respect of a provision made in the accounting year 1973-74, such provision ought to relate to the liability of that year. In fact, deduction for that year was allowed by the Tribunal and other authorities to the extent of Rs. 31,690. However, the provision made in that year in the sum of Rs. 29,593, which is the subject-matter of this reference, relates not to the liability of that year, i.e., 1973-74, but to that of 1972-73. That claim, for the reasons which we have already stated, ought to have been made in that accounting year, and not subsequently. In the circumstances, the claim for deduction in regard to the sum of Rs. 29,593 was, in our view, rightly disallowed by the Income Tax Officer and wrongly allowed by the Appellate Assistant Commissioner and the Tribunal."

Following what we have stated in that decision, it has to be held that the assessee is entitled to claim deduction only to the extent of the provision made by it, in accordance with the relevant provisions of Section 40A(7), in relation to the accounting year 1974-75 relevant to the assessment year 1975-76 and not in relation to the earlier years. Accordingly, we answer the question referred to us in the negative, that is, in favour of the Revenue and against the assessee.

We direct the parties to bear their respective costs in this tax referred case.

A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.