COMMISSIONER OF INCOME TAX Vs. INDIAN METAL AND METALLURGICAL CORPORATION

JUDGEMENT

(1.) THE assessee in this reference application under section 66 of the Indian Income-tax Act is a registered firm of four partners carrying on business as manufacturers of stainless steel-ware, brass-sheets and circles. It maintains its books of accounts on the mercantile system. In the year of account ended April 12, 1956, the relevant "previous year" for the assessment year 1956-57, it credited a sum of Rs. 5,600 to a separate account called "gratuity reserve account". This amount represented approximately fifteen days wages of all its employees or workmen, who were in its service during the year of account. THE stated object of the assessee in carrying this amount of Rs. 5,600 from and out of the profits of the year to the "gratuity reserve account" is to meet an eventual liability in case some of the workers happen to be retrenched at some point of time in future.

(2.) ACCORDING to the assessee, this was a statutory obligation or burden imposed upon it under section 25F of the Industrial Disputes Act. We shall refer to the provisions of this Act and to the nature of the assessees liability a little later.

(3.) THE same principle has been upheld by the Supreme Court in Indian Molasses Co. v. Commissioner of Income-tax. Hidayatullah J. observed thus at page 75 :