SHREE SAJJAN MILLS LTD. versus COMMISSIONER OF INCOME TAX, M.P, BHOPAL AND ANR,

Citation: [1985] SUPP. 3 S.C.R. 593 · Decided: 08-10-1985 · Supreme Court of India · Bench: V.D. TULZAPURKAR · Disposal: Dismissed

Judgment (excerpt)

SllREE SAJJAN MILLS LTD, 
v. 
COMMISSIONER OF INCOME TAX, 
M.P, BHOPAL AND ANR, 
OCTOBER 8, 1985 
593 
[V.D. TULZAPURKAR, SABYASACHI MUKHARJI AND RANGANATH MISRA, JJ,] 
Income Tax Act 1961, ss. 40A (7), 36 (1) (v) and 37 (1) -
Deduction -
Payment of Gratuity -
·Whether deduction can be 
claimed under any other provision under the head 
11business or 
profession" without complying with the requirements of s. 40A (7) 
(b) - Distinction between an actual liability in praesenti and a 
liability de f uturo explained. 
Interpretation of statutes - Taxing statutes - Principle of 
reasonable construction -·Applicability of -
Words and Phrases -
11Provision
11 
- Meaning of. 
The appellant-assessee is a public limited company. The 
relevant assessment year in C,A, No. 4222 of 1984 is 1973-74, 
With the coming into force of the Payment of Gratuity Act, 1972 
with effect from 16th September 1972 a statutory liability was 
created on the assessee to pay gratuity to its employees and the 
appellant arranged for actuarial determination of its liability, 
Pendin,; determination of such an actuarial valuation, the 
assessee made a provision of Rs, 20 lacs against the total 
accruing liability till the date of the preparation of the 
balance sheet. At the time of filing of the return of income for 
the assessment year 1973-74, the assessee added 
back this 
provision forgratuity amounting to Rs. 
20 lacs and 
claimed 
deduction of the total liability of Rs. 48,59,431 which was the 
actuarial determination of liability on the ground that the 
provisions of s.40A (7) of the Income Tax Act 1961 were not 
applicable. 
The Income-Tax Officer disallowed the claim on the ground 
that there was non-compliance with the requirements of section 
40A (7) of the Act, and allowed deduction only to the extent of 
JiCtual payment 
which csme to Rs. 24,366 
towards 
payment of 
gratuity to the employees during the relevant accounting year. 
A 
B 
c 
D 
E 
F 
G 
H 
594 
SUPREME COURT REPORTS 
[1985] SUPP,3 S.C.R, 
A 
Against the aforesaid order of the Income-tax Officer, an 
appeal waa preferred before the Appellate Assistant Commissioner 
who held that provisions of section 40A (7) did not constitute 
any bar to the assessee's claim for deduction u/s 37 of the Act 
aa the assessee had not made any provision in its books in 
respect of the 81110unt of gratuity determined actuarially and the 
B 
provision of Rs. 20 lacs had also been added bac~ in the state-
ment of income. The Appellate Assistant Commissioner, however, 
allowed deduction of Rs, 30,25,662 on this head which according 
to him constituted the assessee 's liability for the relevant 
accounting year. 
The Revenue appealed to the Tribunal which held that the 
C 
sum of Rs. 20 lacs could not be allowed aa deduction, but, the 
balance of Rs. 28,59,431 for which no provision waa made in the 
books was allowable under section 37(1) of the Act. 
D 
E 
In the reference to the High Court under section 256(1) of 
the Act at the instance of the Revenue, it was held that the 
Tribunal waa not juatified in allowing the deduction of Rs. 
28,59,431 under section 37 of the Act out of the total Rs. 
48,59,431 made by the assessee towards liability for gratuity on 
the ground that in view of the non-obstante clause in section 40A 
of the Act, no deduction was permissible under section 37 for the 
assessee's liability for payment of gratuity to its employees 
without complying with the provisions of sub-section (7)(a) of 
section 40A of the Act. A similar question of law arose in the 
other appeal where the appellant - aasessee is the same. 
Dismissing the appeals to this Court, 
HELD: l(i) Payment of gratuity aa 
COlllDlnly understood is 
F 
the payment made to the employee by the employer on his retire-
ment or termination of his service for any reason. It is made 
voluntarily by the employer as a regular practice or pressure of 
trade or business either under an agreement with the employees or 
on the understanding of the trade and after the enactment of the 
Payment of Gratuity Act, 1972 whicn came into force on 16th 
G September, 1972 as a statutory liability under the said Act. 
H 
Although payment of gratuity is made on retirement or termination 
of service, it was not for the service rendered during the year 
in which the payment is made but it is made in consideration of 
the entire length of service and its ascertainment a.'ld computa-
tion depend upon several factors. (608 H; 609 A-B] 
l(ii) The 

Excerpt shown. Read the full judgment & AI analysis in Lexace.