Rastogi, J. - (1.) The Income-tax Appellate Tribunal, Delhi Bench A, has referred the following questions under Section 256(1) of the I.T. Act, hereafter " the Act ", for the opinion of this court: At the instance of the assessee : " Whether, on the facts and in the circumstances of the case, the assessee is entitled to deduct in the computation of its business profit for the year ending September 30, 1964, the amount of increase in the present value of its future liability to pay gratuity to its employees under the scheme of November 1, 1960, as compared with the similar liability which existed as on September 30, 1963 ? "
(2.) At the instance of the department : " 1. Whether the Tribunal was right in holding that the provisions of Section 40(c)(i) and 40(c)(iii) are mutally exclusive and that the expenditure by way of guarantee commission paid to directors was to be considered only in the light of Section 40(c)(i) of the Act ? and 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the entire claim of the guarantee commission paid to the directors was allowable as a deduction having regard to the provisions of Section 40(c)(i) of the Act ? "
(3.) The reference relates to the assessment year 1965-66, the previous year ending September 30, 1964. The assessee, M/s. L.H. Sugar Factories & Oil Mills (P.) Ltd., Pilibhit, is a private limited company engaged in the manufacture and sale of sugar. In the relevant year, the assessee owned two sugar mills, one at Pilibhit and the other at Kashipur. It appears that in pursuance of a notification issued under Section 3 of the U.P. Industrial Disputes Act, 1947, for giving effect to the recommendations of the wage board which recommendations included a scheme of gratuity and which came into force with effect from November 1, I960, the assessee calculated its liability for gratuity on the basis of this scheme at Rs. 7,35,000. A sum of Rs. 4,75,000 was in respect of Pilibhit unit and Rs. 2,60,000 in respect of Kashipur unit. The assessee claimed deduction of this amount from its total income. The ITO allowed a deduction of Rs. 14,189 only, on the basis of actual payments' made during this year. He further found that the assessee had not made any provision in the books for the liability of Rs. 7,35,000, nor it had debited any such amount in the profit and loss account, and that the claim had been made only on the basis of estimate at the time of filing of the computation of income for income-tax purposes. In the opinion of the ITO it was only a provision for a contingent liability and as such was not an admissible deduction.;