Allahabad H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in allowing deduction of Rs. 1,50,729 being gratuity liability, though the amount was not settled under an irrevocable trust ?

P. JEEVAN REDDY, C. J. :

The Tribunal has stated the following question under s. 256(1) of the IT Act, 1961:

“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in allowing deduction of Rs. 1,50,729 being gratuity liability, though the amount was not settled under an irrevocable trust ?”

From the order of the Tribunal, it appears that though no trust has been created by the assessee within the meaning of s. 36(1)(v), this amount was held payable by the petitioner under an award passed by the Industrial Tribunal. It appears that the award passed by the Industrial Tribunal covers more than one assessment year and the amount of Rs. 1,50,729 represents the liability for the assessment year concerned herein, namely, asst. yr. 1972-73 A Bench of this Court has taken the view in Madho Mahesh Sugar Mills Pvt. Ltd. vs. CIT [1973] 92 ITR 503, that, even though no trust is created by an assessee within the meaning of s. 36(1)(v), yet the payment towards, the said liability is permissible deduction. The Tribunal has held in this case that the liability to pay this amount accrued during the relevant year, though actual quantification may have been done later. The assessee in this case is maintaining his accounts according to the mercantile system. In the circumstances, the Tribunal was right in holding that the said amount has to be given deduction.

[Citation : 187 ITR 637]