Decided on August 11,1993



- (1.)At the instance of the Revenue, the Tribunal, Cochin Bench has referred the following questions of law for the decision of this Court:
" 1. Whether, on the facts and in the circumstances of the case, and also in the light of the principle laid down in United Mercantile Co. v. CIT ( 1966 KLT 1019 = (1967) 64 ITR 218 (Ker.) the Tribunal is right in law and fact in holding,

(i) it cannot be said that there was any information which would justify the reopening of the assessment;

(ii) it appears to be only a change of opinion on the part of the ITO;

(iii) no income had escaped assessment and for this reason also the reopening of the assessment cannot be sustained;

(iv) the reopening of the assessment is not legally sustainable

2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction for gratuity at the rate of 8-1/3% of the salary"

(2.)The respondent/assessee is a public limited company. We are concerned with the asst. yr. 1975-76. The assessee published a Malayalam daily and also periodicals. For the relevant assessment year, for which accounting period ended on 31st Dec. 1974, the assessee claimed a deduction of Rs.3,39,873 being the actuarial valuation of the liability for payment of gratuity. In the original assessment, an amount of Rs.93,024 was disallowed and the balance of Rs.2,46,849 was allowed as deduction. The disallowance of Rs.93,024 was affirmed by the AAC and by the Tribunal. The order of the Tribunal is dt. 13th July, 1978. In the meanwhile, the Revenue audit pointed out, by a note dt. 12th Aug. 1977, that the contribution to a recognised gratuity fund is regulated by R.103 of the IT Rules and so the allowance already made in the sum of Rs.2,46,849 requires further appraisal. Thereafter the ITO found that the assessee was required to make only a contribution of 5% of the salary paid to the employees covered by the fund and on that basis only a sum of Rs. 1,66,930 could have been allowed as deduction. The deduction allowed was in excess of Rs.79,919. The ITO reopened the assessment on 281h March, 1980 and made an addition of Rs.79,919.In appeal, the CIT (A) held that the reopening of the assessment was uncalled for in view of the decision of the Tribunal dt. 13th July,1988, and that this was only a case where the audit took a different view of the matter and no "information" is involved to justify the reopening of the assessment. He also opined that the matter is governed by S.40A(7) of the IT Act and deduction was allowable. The order of the CIT (A) is dt.8th Oct. 1982 (Annexure-B). In further appeal by the Revenue, the Tribunal held that the gratuity trust was created in the year 1969 and the application for approval of the gratuity fund was filed before the ITO on 15th Dec. 1969. The instrument of trust and copy of the rules were also filed before the ITO along with a covering letter dt. 11th March, 1970, and a copy of the application for sanction of initial contribution of 8.5% was filed before the CIT (A) on 5th Nov. 1973. On the basis of the above facts, the Tribunal found that the matter regarding the contribution to the approved gratuity fund was being considered by the ITO every year since 1970-71, that the ITO had all the relevant materials (including the trust deed) before him when he made the original assessment for this year (1975-76) and that for reopening the assessment it was only a case of change of opinion, on the part of the ITO. on the basis of what was pointed out by the Revenue audit, namely, that the deduction on account of gratuity liability should be confined to an amount worked out at 5% of the salary as per the gratuity trust deed. The Tribunal held that there was no information to justify the reopening of the assessment.
(3.)On the merits, the Tribunal held that before the introduction of S.40A(7) of the Act, 1975 by Finance Act 1975 (Act 25/75) with retrospective effect from 1st April, 1973, S.36(1)(v) of the I.T. Act alongwith R.103 of the I.T. Rules applied and after the introduction of S.40A, the deduction should be worked out on the basis of S.40A(7). Under the said provision, the admissible amount as defined in Expln.1 is upto 8-1/3% and S.36(1)(v) and R.103 will not apply. In this view, the deduction allowed in the original assessment was held to be correct and concluded that no income has escaped assessment and the reopening was not valid. Accordingly, the appeal filed by the Revenue was dismissed. It is thereafter, at the instance of the Revenue, the questions of law , as stated hereinabove, have been referred for the decision of this Court.

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