- (1.) This reference relates to the assessment year 1972-73, the accounting period ended on July 31, 1971. The West Bengal Employees Payment of Compulsory Gratuity Act, 1971, came into force on June 14, 1971, which created liability on the employer to pay gratuity to its employees. The assessee filed actuarial valuation by Mr. P.K. Ghose, Fellow of the Institute of Actuaries, showing that discounted value of gratuity as on July 31, 1971, was Rs. 77,246. The assessee claimed this amount as a deduction in the year in question. The ITO repelled the claim. The ITO held that the papers do not show the actual amount of liability for the period August 1, 1970, to July 31, 1971. According to him, except the liability for that period, the amount of Rs. 77,246 referred to earlier years. The assessee had neither made any actual payment nor had made any provision for it in its books of account.
(2.) Being aggrieved, the assessee went up in appeal. The AAC held that the gratuity was a contingent liability and, hence, not allowable as a deduction in respect of the earlier years. The matter was taken up to the Tribunal. The Tribunal upheld the claim of the assessee basing on the decision of this court in CIT v. Eastern Spinning Mills Ltd. , following its earlier decision (sic) in the matter of Budge Budge Amalgamated Jute Mills Ltd. v. ITO (decided on February 27, 1976 in Civil Rule No. 4552(W) of 1976). The claim was held to be allowable.
(3.) At the instance of the Revenue, the Tribunal has referred the following question for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in allowing a deduction of Rs. 77,246 under Sub-section (1) of Section 37 of the I.T. Act, 1961, on account of liability towards payment of gratuity to the employees in the assessment for the assessment year 1972-73 ?";