NAGRI MILLS COMPANY LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a public limited company carrying on business of textile manufacture. It maintains its books of account on the mercantile system of accounting. The assessment year is 1968 69, the previous year being the calendar year 1967.

(2.) IT appears that the assessee, along with certain other textile mills, was a party to an industrial dispute raised by the Textile Labour Association, Ahmedabad, under the provisions of the Bombay Industrial Relations Act, 1946, and that the said dispute resulted in an award made by the Industrial Court, Bombay, on September 16, 1957. The award came into force on and w.e.f. the said date. Under the award, gratuity was payable to the employees of the assessee according to the scale and subject to the conditions therein laid down, (i) on the death of an employee while in the service of the assessee or on his becoming physically or mentally incapacitated for further service, (ii) on voluntary retirement or resignation of an employee after fifteen years' continuous service, and (iii) on termination of service by the assessee after ten or fifteen years 'continuous service, as the case may be. Broadly speaking, gratuity payable under the award was to be worked out on the basis of one month's or half a month's basic wages for each completed year of service, depending upon the circumstances of the case, subject to a certain maximum. Gratuity would not, however, be payable to an employee dismissed for misconduct. The assessee accepted the award and from time to time it went on paying gratuity to its employees who became entitled thereto under the award from 1957 onwards. The assessee used to make payment on the happening of any of the events mentioned in the award in relation to any of its employees and the payment, when actually made accordingly, used to be debited in its books of account and allowed as a deduction in the computation of the assessee's income for the relevant year in the course of its assessment to income tax.

(3.) ON December 10, 1971, the assessee addressed a letter to the ITO, who was seized of its assessment proceeding for the relevant assessment year, stating that the "gratuity payable by the assessee to its employees for the year ending December 31, 1967" was estimated at Rs. 29,637 on the basis of an actuarial report and that in view of the decision in Metal Box Co. of India Ltd. vs. Their Workmen (1969) 73 ITR 53 (SC), the company was entitled to deduction under S. 37(1) of the IT Act, 1961 (hereinafter referred to as "the Act"). in respect of such gratuity liability. The assessee requested the ITO to consider its claim in that behalf while finalising its assessment.