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Issues:
1. Approval of CIT for a group gratuity scheme. 2. Allowability of contribution made to the unapproved scheme as an item of expenditure under s. 37 of the IT Act, 1961. 3. Interpretation of statutory provisions related to approved gratuity fund. 4. Compliance with s. 40A(7) for deduction of gratuity. 5. Application for approval of the scheme by the assessee. Analysis: 1. The judgment revolves around the omission to seek approval from the CIT for a group gratuity scheme, leading to a dispute over the allowability of contributions made to the unapproved scheme as an expenditure under s. 37 of the IT Act, 1961. The Tribunal allowed the deduction, contrary to the Revenue's stance, which argued that the deduction was disallowed under s. 36(1)(v) r/w s. 40A(7) of the Act due to the absence of approval. 2. The statutory provisions, including s. 36(1)(v), s. 40A(7), and the definition of an approved gratuity fund under s. 2(6) of the Act, were analyzed. The Court highlighted that the approval of the CIT is a prerequisite for any provision made for gratuity payments to employees to qualify as a deduction. The judgment emphasized that without such approval, the fund cannot be considered an approved gratuity fund, and provisions for future gratuity payments are not deductible unless contributed to an approved fund. 3. Referring to the decision in Shree Sajjan Mills Ltd. vs. CIT, the Court reiterated that deductions for gratuity must comply with the conditions of s. 40A(7) and cannot be allowed under general principles. The Tribunal's error in allowing the deduction under s. 37 without meeting the requirements of s. 40A(7) was highlighted, emphasizing the overriding effect of s. 40A on other provisions of the Act. 4. The judgment addressed the possibility for the assessee to apply for approval of the scheme, acknowledging that similar schemes adopted by other assessees had received approval. The Court permitted the assessee to seek approval within thirty days, with the outcome determining the entitlement to benefits based on the approved scheme for the assessment year in question. In conclusion, the judgment clarifies the importance of obtaining CIT approval for gratuity schemes to qualify for deductions under the IT Act, highlighting the specific requirements outlined in the statutory provisions and the precedence of s. 40A(7) in determining the allowability of such deductions.
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