Dipak Kumar Sen, J. - (1.) Orient Paper Mills Ltd., the assessee, was assessed to income-tax in the assessment year 1971-72; the relevant accounting year ending on March 31, 1971. In its return and in the assessment, the assessee claimed deduction of Rs. 46,798 incurred on tea, tiffin and refreshments at a conference of the salesmen and distributing agents of the assessee at its mill. The Income-tax Officer held that 75 per cent. of the said expenditure was in the nature of entertainment and disallowed an amount of Rs. 34,100 out of the said Rs. 46,798 under Section 37(2) of the Income-tax Act, 1961 ("the Act"), which was included in the total income of the assessee.
(2.) In the said assessment year, the assessee at its mill premises provided boarding and lodging facilities to its employees and visitors who were charged for such facilities. In respect of the aforesaid, the assessee incurred an expenditure of Rs. 1,59,407 in the said assessment year and also recovered charges in respect thereof in a sum of Rs. 1,31,162. The difference of Rs. 28,245 was claimed by the assessee as a deductible expenditure. The Income-tax Officer disallowed the claim on the ground that the assessee maintained a guest house and was not entitled to claim deduction in respect of expenditure incurred for the same under Section 37(4).
(3.) In the assessment year involved, the assessee introduced a scheme for payment of gratuity to its employees, since an enactment on an all-India basis for payment of gratuity by employers to their employees was being contemplated by the Legislature. The assessee obtained an estimate of its liability on account of such gratuity as on March 31, 1971, from qualified actuaries which was ascertained at Rs. 1,16,57,966. A deduction of the said amount was claimed from the total income of the assessee. The Income-tax Officer in making the assessment allowed only the amount of Rs. 12,75,558 as liability pertaining to the assessment year involved. Deduction of the balance was not allowed on the ground that the same constituted liability pertaining to the years prior to the accounting year involved.;