JUDGMENT

Markandey Katju, J. - Leave granted.

2. This appeal by special leave has been filed against the impugned judgment of the Calcutta High Court dated 26.6.2003 in ITA No.404 of 2000.

3. Heard the learned counsel for the parties and perused the record.

4. The respondent M/s. Hooghly Mills Co. Ltd. had by an agreement dated 24.3.1988 with the vendor, purchased an Undertaking and by the same agreement had also taken over the accrued and future gratuity liability of the vendor, which amounted to Rs.3.5 crores. The respondent assessee claimed that since this amount of Rs.3.5 crores towards gratuity is capital expenditure hence it is entitled to depreciation on the sum under Section 32 of the Income Tax Act.

5. The CIT (Appeal) as well as the tribunal allowed the assessees claim and their orders were upheld by the High Court by the impugned judgment.

6. Learned counsel for the appellant contended in this appeal that the expenditure on the taking over the gratuity liability of the employees of the vendor is not capital expenditure but revenue expenditure. He has referred to Section 4(1) of the Payment of Gratuity Act, under which the liability of the employer to pay gratuity to its empl