S.J.G. FAZAL ELAHI LTD. vs COMMISSIONER OF INCOME TAX, CENTRAL ZONE, KARACHI

1. ' SALEEM AKHTAR, J.--This reference relates to assessment year 197273 and 1973-74. For the first time in the year 1971 the applicant assessee debited the accounts of its employees with certain sum and created a provision for gratuity. This step was taken by the applicant in view of the provisions of West Pakistan (Standing Orders) Ordinance, 1968 for benefit of the worker and those who resign from service, or die or whose services are terminated. The Income Tax Officer did not grant allowance for the amount of gratuity but in appeal it was allowed by the Appellate Assistant Commissioner. The department then filed an appeal and the order of the Appellante Assistant Commissioner was set aside. The applicant filed an application under section 66 (1) and the following question has been referred:- "Whether, on the facts and in the circumstances of the case the Tribunal was right in dis-allowing the claim for provision for gratuity"?

2. ' We have heard Mr. Iqbal Naeem Pasha and Mr. Nasrullah Awan, the learned counsel for the parties. Mr. Iqbal Naeem Pasha has referred to Commissioner of Income Tax Central Zone, Karachi v. Pakistan Security Printing Corporation Ltd. 1985 PTD 413. In this judgment although question was diferently worded with reference to a certain notification, the crux of the matter was whether the reserves on account of gratuity were to be excluded and due allowance was to be given while computing the income profits and gains. After discussing a hoast of authorities and exhaustively dealing with the matter our learned Brother Ajmal Mian, J. (as he then was), observed as follows:- "We are, therefore, inclined to hold that since the amounts set apart for gratuity, were intended to provide for ascertained liabilities which accrued in the financial years in question, the same were proper charge on the P & L account on the basis of the proper principles of commercial accountancy as held by the learned Income Tax Tribunal in the relevant years. Our answer to the above quoted questions referred to hereinabove in para 1, is that the gratuity cannot be construed as a free reserve in terms of S R 0 No, 116 (R) 68 but it is an ascertained liability and therefore it is a proper charge on the P & L account for the assessment years in question on the basis of the proper principles of commercial accountancy."

3. The learned counsel for the parties have repeated the same arguments and no fresh arguments have been advanced on behalf of the respondent to take a different view. We respectfully follow the above judgment and answer the question in the negative.