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Issues:
1. Interpretation of section 40A(7) of the Income-tax Act, 1961 regarding deduction of amounts paid to the Life Insurance Corporation of India under the group gratuity scheme. 2. Applicability of section 37 for deduction of insurance premium paid by the assessee. 3. Impact of the decision in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 on the present case. Analysis: The judgment delivered by the High Court of Madras pertains to tax cases initiated by the Revenue concerning the deduction of amounts paid to the Life Insurance Corporation of India under the group gratuity scheme. The Tribunal referred a common question of law to the court under section 256(2) of the Income-tax Act, 1961, seeking clarification on the permissibility of claiming these amounts as a deduction under section 37 of the Act. The respondent, an assessee to income-tax, had paid a quantified premium to the Life Insurance Corporation of India for gratuity provision in the assessment years 1974-75 and 1975-76. The Appellate Tribunal found that the provisions of section 40A(7) were inapplicable in this case as no fund was created by the assessee and directed the Income-tax Officer to verify the actual premium payments made during the relevant years for deduction. However, the court, considering the decision in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585, emphasized that for gratuity to be deductible, the conditions of section 40A(7) must be met. The deduction cannot be allowed under general principles of section 37 as section 40A prevails over other provisions of the Act related to income computation. In light of the above, the court concluded that the deduction sought by the assessee for the insurance premium paid under the group gratuity scheme is impermissible under section 37 of the Act. The court had no choice but to answer the question in the negative, favoring the Revenue Department. The judgment was thus pronounced, disposing of the tax cases without any costs incurred by either party.
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