Judgment

SABYASACHI MUKHARJI, J.

( 1 ) THESE appeals by special leave arise from the judgment and the order of the High Court of Madhya Pradesh dated 29/11/1982 (reported in 1985 Tax LR 184), in reference under Section 256 (1) of the Income-tax Act, 1961 (hereinafter referred to as the act ). The assessee is a public limited company. The assessment year in Appeal No. 4221 of 1984 is 1974-75. In Appeal No. 4222 of 1984, the assessment year is 1973-74. The relevant accounting years ended on 31/03/1974 and 3 1/03/1973 respectively.

( 2 ) FOR the assessment year 1974-75, the assessee company sought to deduct a sum of Rs. 18,37,727. 00 towards the amount of gratuity payable to its employees and worked out actuarially. The break up of this liability was as follows :- for periods ending on 31/03/1972, 31st March, 1973 and 31st 31/03/1974, assessees liability was worked out at Rs. 64,31,286. 00. Out of this amount provision had been made during these years to the tune of Rs. 45,93,559. 00. No provision had been made for the balance amount of Rs. 18,37,727. 00 The claim for deduction was set up on the ground that this liability was ascertained by actuarial valuation and was deductible under section, 37 (1) of the Act. The Income-tax Officer allowed the deduction of a sum of Rs. 2,65,872. 00 only which was actually paid by the assessee and the rest was disallowed on the ground of non-compliance with the provisions of Section 40a (7) of the Act. The assessee preferred an appeal but the same was dismissed by the Commissioner of Income-tax (Appeals ). The assessee thereafter preferred a second appeal to the Tribunal. The Tribunal, for the reasons mentioned held that for the assessment year relating to 1973-74, actuarially ascertained liability for gratuity especially arising under the Payment of Gratuity Act 1972 was an allowable deduction. The Tribunal had consistently taken the view that the assessee would not be eligible for deduction under Section 37 in respect of such liability to the extent of the provision made by the assessee in its account without simultaneously conforming to the requirements of Section 40a (7 ). Where, however, the actuarially determined liability was not provided for or was in excess of the provision made by the assessee in the books of account the relevant amount could be allowed as liability under Section 37 as the provisions of Section 40a (7) would not reach it.

( 3 ) IN the assessment of 1974-75, the Tribunal referred to the facts and observed that increased liability of Rs. 15,71,855. 00 had been claimed by the assessee without any provision made in respect thereof in the books of account. In the circumstances, they upheld the claim of the assessee for Rs. 15,71,855. 00and directed the Income-tax Officer to allow this sum as a liability.

( 4 ) AT the instance of the revenue, the following questions were referred to the High Court, namely :" (1) Whether, on the facts and in the circumstances of the case, the tribunal was right in law in allowing the deduction of Rs. 15,71,855. 00 under section 37 of the I.-T. Act, 1961 out of the sum of Rs. 28,59,43 1. 00 for which provision was made towards liability for gratuity? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that section 40a (7) is attracted only in respect of the provision made in the books of account and that the balance liability claimed i. e. Rs. 15,71,855. 00 towards gratuity is admissible under sec. 37 of the Income-tax Act 1961. "and for the reasons mentioned, for the assessment year 1973-74 which is the subject matter of the next appeal and following the said decision, the High Court held that the assessee was not entitled to deduction on account of its liability for gratuity under the Payment of Gratuity Act, 1972 without complying with the provisions of Section 40a (7) of the Act and accordingly answered both the questions in the negative and against the assessee. This decision is the subj