R.K.Agrawal J. - (1.) The Income-tax Appellate Tribunal, Allahabad, has referred the following questions of law under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion to this court :-" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in holding that the liability of gratuity amounting to Rs. 16,45,092 relating to past years accrued in the accounting year relevant to the assessment year 1972-73 and was, therefore, an allowable deduction for that assessment year? 2. Whether, on the facts and in the circumstances of the case, when the system of accounting of the assessee was mercantile and when Dr. Sampurnanand Award of 1961 was extended by the U. P. Government year after year, the Tribunal was justified in law in holding that the liability of Rs. 16,45,092 relating to the past years arose for the first time in the assessment year 1972-73? 3.Whether, the Tribunal having found that the assessee-company had failed to claim the liability for gratuity for the past year was justified in law in holding that it was not debarred from claiming the liability of earlier years in the assessment year 1972-73? 4. Whether, on the facts and in the circumstances of the case, when the provisions of Section 36(1)(v) of the Income-tax Act, 1961, the provisions as contained in Part C of Schedule IV of the Income-tax Act, 1961 and the rules relating thereto were not complied with, the Tribunal was in law justified in allowing the claim of gratuity of Rs. 16,45,092 in the assessment year 1972-73? 5. Whether, on the facts and in the circumstances of the case, when the provisions of Section 36(1)(v) of the Income-tax Act, 1961, the provisions as contained in Part C of Schedule IV of the Income-tax Act, 1961 and the rules relating thereto were not complied with, the Tribunal was in law justified in allowing the claim of gratuity of Rs. 12,45,428 in the assessment year 1972-73? 6. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the interest paid to the Income-tax Department was an allowable deduction under the Income-tax Act ?"
(2.) Briefly stated, the facts giving rise to the present reference are as follows : The reference relates to the assessment year 1972-73, the previous year being the financial year. The respondent-assessee is a pubic limited company incorporated under the Companies Act. It is engaged in manufacturing of cotton textile goods. A part of its products are exported to various countries. For the assessment year 1972-73, the respondent-assessee claimed the following amount of retirement gratuity as deduction while computing its profit and loss : (i) in respect of the years prior to the accounting year under consideration Rs. 16,45,092 ; (ii) in respect of the accounting year under consideration Rs. 12,45,428 ; and (iii) actually paid and debited to the profit and loss account Rs. 1,66,495.
(3.) The Assessing Officer found that the respondent-assessee was making payment of gratuity to its employees on the basis of the Cawnpore Cotton Textiles Industries Workmen's Gratuity Scheme which became effective from August 14, 1961, published by the U. P. Government under Section 6(3) of the U. P. Industrial Disputes Act, 1947, popularly known as the Dr. Sampurnanand Award. He also noticed that the provisions of the Dr. Sampurnanand Award, 1961 was substantially the same as those contained in the U. P. Government Notification No. 4268, dated November 19, 1971, and the Payment of Gratuity Act, 1972. However, he allowed the claim of the respondent-assessee only for Rs. 1,66,495 in respect of gratuity actually paid and debited to the profit and loss account as in the earlier years. The Assessing Officer had rejected the claim in respect of the remaining two amounts on the ground that the liability accrued from year to year in the past and not in the accounting year under consideration under the Dr. Sampurnanand Award of 1961. Further, there was no approved gratuity fund created under irrevocable trust as laid down under the Act or the Rules made thereunder and the conditions laid down in Section 36(1)(v), Fourth Schedule and the Income-tax Rules were not fulfilled. He further held that the assessee had been regularly following the system of claiming deduction on payment basis and no bona fide reason for deviation therefrom could be established. He was further of the opinion that not only an irrevocable trust was to be created, the fund has also to be invested in the manner provided in the Income-tax Rules.;