COMMISSIONER OF INCOME TAX Vs. CHHOTABHAI JETHABHAI PATEL TOBACCO PRODUCTS COMPANY LIMITED

JUDGEMENT

(1.) IN this case, the following two questions have been referred to us at the instance of the revenue :

(2.) THE facts leading to this reference are as follows : The assessment years under reference are assessment years 1966 -67 to 1969 -70. The assessee is a limited company carrying on business as the sole distributor of the products of M/s. Chhotabhai Jethabhai Patel and Co., a registered partnership firm and this distributorship started from July 1, 1962. The assessee -company purchase 'bidis' at fixed rates and sells them at fixed rates to various merchants. The assessee -company had a head officer at Nadiad and several branches all over India at different places. Question No. (1) relates to assessment year 1966 -67. The previous year is Samvat year 2021, that is, the period from November 5, 1964, to October 24, 1965. Before the ITO, the assessee claims a deduction of the sum of Rs. 32,245 out of a contribution of Rs. 58,871 made to the provident fund by the assessee. The ITO disallowed the claim of the assessee on the ground that these payments related to the period prior to July 1, 1965, that is, before the date of the recognition of the fund by the Commissioner. According to the ITO, this liability was not a liability under the Employees' Provident Funds Act, 1952, and hence was not allowable and s. 36(1)(iv) of the Act. According to the ITO, the decision of the Supreme Court in CIT v. Mysore Spinning and Mfg. Co. Ltd. : [1970]78ITR4(SC) was not applicable to the facts of the assessee's cases. The assessee went up in appeal to the AAC and it was urged at the stage of that appeal that the business was originally carried on by the firm (the assessee) and later on taken over by the limited company. It was contended on half of the assessee that the liability to the provided fund was attached to the business and not to the owners and, therefore, when the said liability applied to the firm, it could be said to apply to the assessee -company which carried on the said business. The AAC did not agree with this contention and the confirmed the order of the ITO, so far as this amount of provident fund contribution was concerned.

(3.) QUESTION No. (2) relates to the disallowance, of gratuity payments made during the concerned previous year relevant to the assessment year under reference before us. It appears from the table which has been set out in the statement of the case that payments to legal representatives or widows and dependents of different employees of the assessee -company who died while in service were made from time to time but, as the Tribunal has pointed out, there was no co -relation between the payments made and the months of service or the last pay drawn by the employee concerned prior to his death. In view of this peculiar position regarding these so -called gratuity payments, the Tribunal held that only the payment of an amount equivalent to twelve months' salary on the basis of salary last drawn before death would be a reasonable amount to be allowed as deduction under the provisions of s. 37 of the I.T. Act.