N.J. HARTNETT v. SECOND INCOME TAX OFFICER
[Citation -1985-LL-0819]

Citation 1985-LL-0819
Appellant Name N.J. HARTNETT
Respondent Name SECOND INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 19/08/1985
Assessment Year 1980-81
Judgment View Judgment
Keyword Tags accrual of income • gratuity fund
Bot Summary: The assessee retired from I. T. C. Ltd. At the time of retirement he was entitled to receive a gratuity of Rs. 53,560. The ITO held that the entire gratuity of Rs. 53,560 accrued toes the assessee at the time of retirement and after allowing exemption of Rs. 30,000 added the balance in the income assessable for the assessment year 1980-81. Since, according to the Gratuity Fund Rule of the company, only Rs. 30,000 accrued at the time of retirement, the balance was not assessable on retirement but would become taxable only on the dates on which it became actually payable. The learned departmental representative argued that the entire gratuity in one lump sum became due to the assessee after retirement and the postponement of part of the gratuity to a later date or dates will not affect the accrual of income to the assessee. According to rule 8 of the Gratuity Fund Rules the maximum survival gratuity calculated in accordance with rule 7(b) or Rs. 30,000, whichever is lower, would accrue and become payable to the member immediately on cessation of the employment with the company. According to rule 9 of the Gratuity Fund Rules, half of the balance of the maximum survival gratuity, if any, after payment of the amount due in accordance with rule 8, will accrue and become due and will be payable by the trustees 13 months after the cessation of the employment of the member. Further, the right to receive the installments mentioned in rules 9 and 10 of the Gratuity Fund Rules will accrue to the assessee only if the member is alive on that date and is not working in any other firm competing with the former employer.


appeal is by assessee. assessee retired from I. T. C. Ltd. At time of retirement he was entitled to receive gratuity of Rs. 53,560. Rs. 30,000 were paid immediately after retirement and balance was paid in two annual installments of Rs. 11,780 each. ITO held that entire gratuity of Rs. 53,560 accrued toes assessee at time of retirement and after allowing exemption of Rs. 30,000 added balance in income assessable for assessment year 1980-81. AAC concurred with him. assessee is in appeal. 2. learned representative of assessee submitted that according to terms of contract, assessee was entitled to only sum of Rs. 30,000 at time of retirement. balance was payable in two installments payable annually. Since, according to Gratuity Fund Rule of company, only Rs. 30,000 accrued at time of retirement, balance was not assessable on retirement but would become taxable only on dates on which it became actually payable. He, accordingly pleaded the order of AAC should be reversed. learned departmental representative argued that entire gratuity in one lump sum became due to assessee after retirement and postponement of part of gratuity to later date or dates will not affect accrual of income to assessee. 3. We have gone through Gratuity Fund Rules. It is seen that gratuity has to be calculated at rate of one-half of month's average salary for each completed year of continuous service, subject to maximum of twenty months' average salary. This amount is designated as maximum survival gratuity (rule 7 of Gratuity Fund Rules). According to rule 8 of Gratuity Fund Rules maximum survival gratuity calculated in accordance with rule 7(b) or Rs. 30,000, whichever is lower, would accrue and become payable to member immediately on cessation of employment with company. According to rule 9 of Gratuity Fund Rules, half of balance of maximum survival gratuity, if any, after payment of amount due in accordance with rule 8, will accrue and become due and will be payable by trustees 13 months after cessation of employment of member. balance will likewise accrue sea become due and payable 26 months after cessation of employment. Further, right to receive installments mentioned in rules 9 and 10 of Gratuity Fund Rules will accrue to assessee only if member is alive on that date and is not working in any other firm competing with former employer. If he dies within period amount will become due to his wife, etc. It is thus clear from above rules that balance of maximum survival in excess of Rs. 30,000 will not accrue or become due to employee immediately on cessation of his employment with company. We have, therefore, to hand that authorities below were in error in including Rs. 23,560 in income of assessee. addition is deleted. order of AAC is reversed. 4. appeal is allowed. *** N.J. HARTNETT v. SECOND INCOME TAX OFFICER
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