R.L.GULATI, J. - (1.) UNDER S. 256(1) of the IT Act, 1961, the Tribunal, Allahabad, has submitted a statement of the case inviting the opinion of this Court on the following question of law : "Whether, on the facts and in the circumstances of the case and on a true construction of the Government notification dated April 27, 1961, it could be held that no liability accrued to the assessee -company for the payment of the gratuity for the assessment year under appeal ?"
(2.) THE assessment year involved is 1962 -63, the relevant accounting period being the year ending on September 30, 1961. The assessee claimed to deduct a sum of Rs. 1,37,811 in the computation of its net income liable to income -tax. This amount, according to the assessee represented the sum which he would be required to pay to its workmen on account of gratuity. The claim was disallowed by the ITO, the AAC and finally by the Tribunal. The main ground for disallowing the claim, as set out in the order of the Tribunal, is that in the relevant accounting year no ascertained liability arose for payment of gratuity. When the reference came up for hearing before this Court, it was felt that in order to effectively dispose of the reference, it was necessary to know the discounted value during the year in which the debit entry was made of the future gratuity payment. As the Tribunal had not applied its mind to this aspect of the question, the case was sent back to it for a supplementary statement of the case stating the discounted value of the liability on account of gratuity during the relevant year. The Tribunal found that the amount claimed by the assessee did not represent the true discounted value of the liability. The Tribunal, accordingly, thought it proper to obtain expert calculations from an actuary. The assessee then produced a certificate from the Zonal Actuary of the Life Insurance Corporation of India, Kanpur. On the basis of that report the Tribunal found that the fair estimate of the discounted present value of the gratuity payment as on September 30, 1961, would be Rs. 1,05,200. Thus, if the answer to the question referred to us is in favour of the assessee, it would be entitled to deduct a sum of Rs. 1,05,200 out of its profit in order to arrive at the net profits liable to tax. The assessee is a private limited company and owns and runs a sugar mills in the district of Basti in Uttar Pradesh. On April 27, 1961, the U. P. Government issued a notification to implement the recommendations of the wage board which had been appointed in December, 1957, for working out the wage structure, etc., of employees in sugar industry. The scheme came into force on November 1, 1960. The relevant clause of the scheme runs as follows : "Scale of gratuity : 1. Subject to the other provisions of this scheme, gratuity shall be paid according to the following scale and on the occurrence of the following events : (i) For the period prior to the enforcement of this scheme on completion of ten but less than thirty years' or seasons' continuous service as the case may be, one -third of the month's pay to a permanent and one -sixth of the month's pay to a seasonal workman for every continuous year or season of service, as the case may be. (ii) For the period subsequent to the enforcement of this scheme on completion of ten years' or seasons' service one -fourth of the monthly pay to a permanent and one -eighth to a seasonal workman for every completed year or season of service, and on completion of 20 years or seasons of service, but less than 30 years, one - third of the monthly pay to a permanent and one -sixth to a seasonal workman for every completed year of service. (iii) On completion of 30 years' or seasons' continuous service as the case may be, the amount payable for events mentioned in cls. (a) to (c). (2) A fraction of a year exceeding six months shall count as one full year and six months or less shall be ignored. (3) In calculating the amount of gratuity the period of service after the implementation of the wage structure as given in this order shall be taken first and the pay for the pre -implementation period will be the basis for the calculation of gratuity for the rest of the years."
(3.) IT is in pursuance of this notification that the assessee -company set apart a total sum of Rs.1,37,811 for payment of gratuity and made an appropriate entry in its books of accounts crediting the gratuity account and debiting the P&L a/c. According to the assessee the sum of Rs. 1,37,811, was made up as under : (a) On death while in employment irrespective of the length of service. One -half of a month's pay to a permanent and one -fourth of a month's pay to a seasonal worker for every continuous year or seasons of service,, as the case may be,, subject to a maximum of fifteen month's pay. (b) On attainment of the age of superannuation. . (c) On retirement or resignation due to continued ill -health. . (d) On resignation or on termination of employment for any reason other than for serions misconduct : . Rs. 17,063.25 for previous year. Rs. 1,20,747.62 for earlier years. As pointed out earlier, the Tribunal has disallowed the claim on the ground that the liability of the assessee for payment of gratuity in the relevant accounting period was not ascertained and it was only a contingent liability which the assessee had to meet at a future date as and when a particular event took place. ;