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Issues:
1. Deductibility of provision for gratuity in the accounts of a cooperative society engaged in salt production and sale. Analysis: The appeal before the Appellate Tribunal ITAT Madras-C revolved around the deduction claim of a provision for gratuity amounting to Rs. 1,82,170 made by a cooperative society for the workers. The society contended that the provision should be allowed as a deduction. The society's arguments included the provision being related to workers from various years based on 7 days' wages, the prohibition of members from being employees as per bye-laws, and the requirement of profit declaration by the Registrar of Cooperative Societies under the Madras Co-operative Societies Act, 1961. Additionally, the society highlighted that only workers, not employees, were involved, and other regular employees were covered under a Group Insurance Scheme. However, the CIT(A) ruled against the deduction claim, stating that workers eligible for gratuity included permanent daily wage employees, and therefore, the provisions of s. 36(1)(v)/40A(7) applied. The society's request for recognition of the Gratuity Fund was not approved, leading to the disallowance of the claim. The society further argued that the restrictions under s. 36(1)(v) r/w 40A(7) applied only to regular employees, not member-workers. They emphasized the audit report's mention of gratuity payments and the request for permission to create a gratuity fund. However, the Tribunal disagreed with the society's contentions, stating that the worker-members should be considered employees based on various factors, such as contributions to the Employees Provident Fund and payment of gratuity as per the Gratuity Act. The Tribunal highlighted the definition of "employee" under the Payment of Gratuity Act, 1972, and the provisions of s. 36(1)(v) and s. 40A(7) regarding the deduction of gratuity provisions. The Tribunal concluded that the society's plea that the worker-members should not be treated as employees was not acceptable, and the provision for gratuity was not admissible as a deduction under the relevant sections. Therefore, the appeal was dismissed. In summary, the judgment addressed the deductibility of a provision for gratuity in the accounts of a cooperative society engaged in salt production and sale. The society's contentions regarding the nature of the workers, the provisions of the Gratuity Act, and the applicability of s. 36(1)(v)/40A(7) were thoroughly examined. The Tribunal ultimately held that the worker-members should be considered employees, and the provision for gratuity was not admissible as a deduction under the Income Tax Act. The decision of the CIT(A) disallowing the claim was upheld, and the society's appeal was dismissed.
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