Judgment :- N. V. BALASUBRAMANIAN, J. An interesting question of law on the question of deduction of gratuity liability in the computation of the principal value of the estate arises on the facts of the case. The Appellate Tribunal in pursuance of the direction of this court under section 64(3) of the Estate Duty Act, 1953, in T. C. P. No. 319 of 1977, dated February 3, 1978, has stated a case and referred the following question of law for our consideration "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the amount of gratuity was payable on the basis of all the employees retiring on the date of death of the estate of the deceased and that, therefore, it should be deducted from the principal value of the estate of the deceased for estate duty purposes?" The question referred to us, in our opinion, should be reframed as under: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the amount of gratuity payable on the basis of all the employees retiring on the date of the death of the deceased should be regarded as a liability and, therefore, should be deducted from the principal of the estate of the deceased for the estate duty purposes?" The short facts leading to the present tax case reference are as under : One D. Rajagopal Naidu was the proprietor of Sri Lakshmi Saraswathi Motor Service, Gudiyatham, North Arcot District. He passed away on March 28, 1973. The accountable persons filed the estate duty account on behalf of all the legal representatives and in the account filed, the accountable person, inter alia, claimed a deduction of a sum of Rs. 83, 992 as gratuity liability of the deceased towards the employees employed in the business carried on by him till the date of his death under section 44 of the Estate Duty Act, 1953 (hereinafter to be referred to as "the Act"). The Assistant Controller of Estate Duty rejected the claim of the accountable person on the ground that under the Payment of Gratuity Act, 1972 (hereinafter to be referred to as "the Gratuity Act"), the gratuity would become payable on the termination of the employment of the employees due to superannuation, retirement, death or disablement. The Assistant Controller of Estate Duty rejected the claim of the accountable person on the ground that under the Payment of Gratuity Act, 1972 (hereinafter to be referred to as "the Gratuity Act"), the gratuity would become payable on the termination of the employment of the employees due to superannuation, retirement, death or disablement. According to the Assistant Controller of Estate Duty, the liability to pay gratuity to the employees is only a contingent liability and there was no liability to pay the gratuity at the time of the death of the propositus. The Assistant Controller also held that even under the provisions of the Tamil Nadu Stage Carriages and Contract Carriages Acquisition Act, 1973, the gratuity liability cannot be regarded as an immediate and ascertained liability allowable under section 44 of the Act. In this view of the matter, he disallowed the claim of the accountable person for the deduction of the gratuity liabilityThe accountable person preferred an appeal before the Appellate Controller of Estate Duty against the disallowance of Rs. 83, 992 made by the Assistant Controller of Estate Duty towards gratuity liability. The Appellate Controller held that the entire amount of gratuity would become due only on the termination of the employment, and since no employee was terminated from service on the date of the death, there was no question of allowing any liability towards the gratuity. He, therefore, held that the assessment made by the Assistant Controller was in order and upheld the same The accountable person carried the matter by filing a further appeal to the Income-tax Appellate Tribunal. The Appellate Tribunal held that the liability on account of gratuity cannot be regarded as a contingent liability and any purchaser of a business with sufficient number of employees would certainly take into account the fact that all the employees who have completed the minimum years of service should be paid gratuity, it they were forced to leave from the service. In this view of the matter, the Appellate Tribunal held that the amount of gratuity payable on the basis of all employees retiring on the date of the death of the deceased should be regarded as a liability on the estate and directed the Assistant Controller to reduce the sum of Rs. 83, 992 from the value of the estate passing. 83, 992 from the value of the estate passing. The Appellate Tribunal also directed the Assistant Controller to ascertain the correct figure of gratuity having regard to the salary and length of service of the employees. In this view of the matter, the Appellate Tribunal allowed the appeal of the accountable person in so far as the claim for deduction of the gratuity liability is concerned Aggrieved by the order of the Appellate Tribunal, the Revenue sought for a reference and on the basis of the directions of this court, the Appellate Tribunal has stated a case and referred the question of law set out above. Mr. C. V. Rajan, learned counsel for the Revenue, submitted that the gratuity liability is only a contingent liability and cannot be allowed as a debt under section 44 of the Estate Duty Act. He submitted that there is a distinction between the deduction of the gratuity liability and the deduction towards the provisions made for the gratuity liability. He submitted that the liability is only a contingent liability, and, therefore, the Appellate Tribunal was not correct in holding that the gratuity liability should be deducted on the basis that all the employees would have retired on the date of the death of the deceased. He submitted that the business continued as a going concern and there is no liability towards the gratuity and, therefore, the Tribunal was not correct in holding that the gratuity liability should be deducted from the principal value of the estateThe respondent, Lakshmikanthammal, died during the pendency of the reference proceedings and her legal representative has been brought on record but there was no representation on behalf of the respondent We have carefully considered the submissions made by C.V. Rajan, learned counsel for the Revenue, and perused the entire records of the case. There is no dispute by the Revenue that if an employer makes a provision for gratuity for all the employees employed by the employer on the scientific or actuarial basis, such a provision for gratuity can be regarded as a present, direct and immediate liability of the employer for the reason that the provision would represent the present discounted value of the employer's commitment, as a whole, to pay his workmen gratuity, as and when it becomes payable. The above position of law is well-settled by a decision of this court in CWT v. S. Ram 1984 (147) ITR 278, 1983 (37) CTR 158, 1983 (15) TAXMAN 149 , 1983 (37) CTR(Mad) 158 wherein this court held that for the estate duty purposes, the provision of gratuity made on scientific basis is an allowable deduction in computing the principal value of the estate. This court also held that the provision made on scientific or actuarial valuation should be regarded as a "here and now" liability and it cannot be regarded as a contingent liability. The House of Lords in Southern Railway of Peru Ltd. v. Owen 1956 (2) AllER 728, 1957 (32) ITR 737, 1957 AC 334, 36 Tax(Cas) 602 held that a deduction should be allowed in respect of the liability to pay retiring benefits or deferred remuneration to employees in the future, provided the liability is accurately estimated, i.e., upon an actuarial valuation. Lord MacDermott in that case has held "as a general proposition it is, I think, right to say that, in computing his taxable profits for a particular year, a trader, who is under a definite obligation to pay his employees for their services in that year an immediate payment and also a future payment in some subsequent year, may properly deduct not only the immediate payment, but the present value of the future payment provided such present value can be satisfactorily determined or fairly estimated." The same decision also established the proposition that the total or aggregate obligation to pay gratuity or other retiring benefits for the services rendered by all the employees in a year cannot be regarded as a mere contingent liability merely because some of the employees may forfeit their rights to claim gratuityThe apex court in Shree Sajjan Mills Ltd. v. CIT 1986 AIR(SC) 484, 1986 (9) ECR 276, 1985 (156) ITR 585, 1985 (2) Scale 737 , 1985 (4) SCC 590 , 1985 (S3) SCR 593, 1985 (49) CTR 193, 1985 (23) TAXMAN 37, 1986 (2) TLR 48, 1985 (2) SCALE 737 , 1986 SCC(Tax) 82, 1985 (49) CTR(SC) 193 held that the provision made in the profit and loss account for the present value of the contingent liability properly ascertained and discounted on an accrued basis as falling on the assessee in the year of account could be deductible in the computation of business income. The Supreme Court, following an earlier decision in Metal Box Company of India Ltd. v. Their Workmen 1969 (39) CC 410, 1969 (1) SCR 750 , 1969 AIR(SC) 612, 1969 (1) LLJ 785 , 1969 (35) FJR 181, 1969 LIC 995, 1969 (18) FLR 336, 1969 (73) ITR 53, 7392 ITR(Page) 503 held that it is permissible for the assessee if he so chooses to provide in his profit and loss account for the estimated liability under a gratuity scheme by ascertaining the present value on accrued basis and claiming it as an ascertained liability to be deducted in the computation of the profits and gains of the previous year. In the above decision, the apex court made it clear that the liability to pay gratuity could be regarded as an ascertained liability, provided the present value of the liability is properly estimated on accrued basis. Therefore, it cannot be said that the liability towards the gratuity, if properly ascertained, is a contingent liability. No doubt, the accountable person is not claiming it as a provision made to meet the liability, but the nature of the liability is such that it cannot be regarded as a contingent liability, especially after the enactment of the Payment of Gratuity Act, 1972. This court in CED v. Lucy Pandiaraj 1996 (222) ITR 623, 1998 (146) CTR 311, 1996 (88) TAXMAN 501 has held that in ascertaining the partner's interest in a firm under the break-up value method, the provision for gratuity based on actuarial valuation is liable to be deducted. In similar circumstances in the case of Smt. Jamnaben G. Mistry v. CED 1994 (210) ITR 50, 1994 (121) CTR 347, 1994 (76) TAXMAN 135 it was held by the Gujarat High Court as under: "A prudent purchaser or businessman would take into consideration the plus and minus factors before offering a price. Apart from other facts which he may take into consideration, he is bound to consider the liability to pay gratuity to the employees. He may work out that liability by a scientific method or on the basis of actuarial valuation which would constitute provision representing fairly and accurately all the existing liabilities on the date of purchase. After taking into consideration all these factors, he would determine the market value of the estate. He may work out that liability by a scientific method or on the basis of actuarial valuation which would constitute provision representing fairly and accurately all the existing liabilities on the date of purchase. After taking into consideration all these factors, he would determine the market value of the estate. As stated earlier, at this stage for determining the value of the property, section 44 would have no application. That question for deduction of the amount of debt or encumbrance would arise only when the value of the estate for the purpose of estate duty is determined and, as stated above, that determination would be on the basis of the market price. For determining the market price, as stated earlier, all the liabilities are required to be taken into consideration including the provision for gratuity which is scientifically assessed at its discounted present value. That liability for gratuity may be either under the statutory provision or under the industrial awards or by contract." * We agree with the decision of the Gujarat High Court that gratuity liability should be taken into account when the liability is scientifically arrived at the present discounted value and the liability to pay gratuity may arise either under the provision of the Payment of Gratuity Act or under an award or by contract. In any case, the liability should be taken into account under section 36 of the Act, in determining the value of the estate passing, and the Tribunal has arrived at the same conclusion. Therefore, any purchaser of the business would certainly take into account the fact that all the employees who have completed the continuous service for gratuity, provided under the Payment of Gratuity Act would be paid gratuity if they were to leave from service. That liability cannot be regarded as a contingent liability at all, but a present and existing liability on the date of the death of the deceased and it should be taken into account in determining the value of the estate. That apart, on the death of the employer, there is a termination of service of the employer and employee relationship in the eye of law, and it is only on the basis of the option of the new employer, the employees of the erstwhile employer continue in service, when the business is continued as a going concern. That apart, on the death of the employer, there is a termination of service of the employer and employee relationship in the eye of law, and it is only on the basis of the option of the new employer, the employees of the erstwhile employer continue in service, when the business is continued as a going concern. Certainly, at that point of time, the new employer would take into account the liability towards the gratuity that he may have to discharge in future, but the nature of the liability is such that it is a real and present liability which should go into the reckoning of the value of the business assets passing on the death of the deceased. We see no error in the order of the Appellate Tribunal holding that the gratuity liability is deductible. Accordingly, we answer the question of law reframed by us in the affirmative and against the Revenue. There will be no order as to costs.