Sabyasachi Mukharji, J. - (1.) These appeals by special leave arise from the judgment and the order of the High Court of Madhya Pradesh dated 29th November, 1982, in reference under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). The assessee is a public limited company. The assessment year in Appeal No. 4221 of 1984 is 1974-75. In Appeal No. 4222 of 1984, the assessment year is 1973-74. The relevant accounting years ended on 31st March 1974 and 31st March, 1973 respectively.
(2.) For the assessment year 1974-75, the assessee company sought to deduct a sum of Rs. 18,37,727/- towards the amount of gratuity payable to its employees and worked out actuarially. The break up of this liability was as follows:- for periods ending on 31st March 1972, 31st March, 1973 and 31st March, 1974, assessee's liability was worked out at Rs. 64,31,286/-. Out of this amount provision had been made during these years to the tune of Rs. 45,93,559/-. No provision had been made for the balance amount of Rs. 18,37,727/- The claim for deduction was set up on the ground that this liability was ascertained by actuarial valuation and was deductible under section, 37(1) of the Act. The Income-tax Officer allowed the deduction of a sum of Rs. 2,65,872/- only which was actually paid by the assessee and the rest was disallowed on the ground of non-compliance with the provisions of Section 40A(7) of the Act. The assessee preferred an appeal but the same was dismissed by the Commissioner of Income-tax (Appeals). The assessee thereafter preferred a second appeal to the Tribunal. The Tribunal, for the reasons mentioned held that for the assessment year relating to 1973-74, actuarially ascertained liability for gratuity especially arising under the Payment of Gratuity Act 1972 was an allowable deduction. The Tribunal had consistently taken the view that the assessee would not be eligible for deduction under Section 37 in respect of such liability to the extent of the provision made by the assessee in its account without simultaneously conforming to the requirements of Section 40A(7). Where, however, the actuarially determined liability was not provided for or was in excess of the provision made by the assessee in the books of account the relevant amount could be allowed as liability under Section 37 as the provisions of Section 40A(7) would not reach it.
(3.) In the assessment of 1974-75, the Tribunal referred to the facts and observed that increased liability of Rs. 15,71,855/- had been claimed by the assessee without any provision made in respect thereof in the books of account. In the circumstances, they upheld the claim of the assessee for Rs. 15,71,855/-and directed the Income-tax Officer to allow this sum as a liability.;