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Interpretation of section 36(1)(v) of the Income-tax Act regarding the deduction of gratuity contribution made by an employer to an approved gratuity fund for the exclusive benefit of employees. Analysis: The judgment of the High Court of Madras involved a case where the assessee, a subsidiary of a trading company, claimed a deduction for a contribution made towards an approved gratuity fund for its employees. The dispute arose when the Income-tax Officer disallowed the claim, stating that the employees did not have a legal right to claim gratuity as they had not completed five years of continuous service with the assessee-company. However, the Commissioner of Income-tax (Appeals) allowed the deduction, emphasizing that the contribution to the gratuity fund was admissible under section 36(1)(v) of the Income-tax Act without further restrictions. The Appellate Tribunal also upheld this decision, stating that once the conditions under the Act were met, the contribution was deductible. The main question before the court was whether the sum contributed by the assessee to the approved gratuity fund was a permissible deduction under section 36(1)(v) of the Act. The Revenue argued that the employees had not completed five years of service with the assessee, making them ineligible for gratuity. On the other hand, the assessee contended that an agreement between the holding company and the assessee ensured that the services of employees from the holding company were considered as continuous service with the assessee. The court carefully considered the facts and found that the employees of the holding company were indeed taken over by the assessee, and no employee was disqualified for gratuity if their service with the holding company was considered. The court also noted that the conditions under section 36(1)(v) were fulfilled, and there was no violation of the rules regarding the contribution to the gratuity fund. The court emphasized that the inquiry under this section is limited to whether the prescribed conditions are met and not to delve into other aspects such as the duration of service of employees. Ultimately, the court agreed with the Tribunal's decision that the contribution made to the approved gratuity fund was a deductible expense under section 36(1)(v) of the Act. The court held in favor of the assessee, stating that the sum contributed was admissible as a deduction. Therefore, the court answered the question referred to them in the affirmative, against the Revenue. No costs were awarded in this case.
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