9911796707
TMI Blog1984 (12) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... d on 20-7-1976, Rs. 93,024 was disallowed on the ground that it relates to future incremental liability and only the remaining amount of Rs. 2,46,849 was allowed as a deduction. The assessee took up the matter in appeal before the AAC and subsequently before the Tribunal. By the order dated 13-7-1978, in IT Appeal No. 1053 (Coch.) of 1976-77, the Tribunal confirmed the disallowance of Rs. 93,024. Meanwhile the revenue audit gave on 12-8-1977 a note, pointing out that contributions to a recognised gratuity fund are regulated by rule 103 of the Income-tax Rules, 1962 (' the Rules '), that the trust deed with regard to the constitution of the approved gratuity fund was not available to the audit and that it requires verification whether the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act, 1961 (' the Act '), and that, under the same, deduction was admissible of a provision made for gratuity up to 8 1/3 per cent of the salary and that there was no justification for restricting the deduction up to 5 per cent of the salary. Aggrieved by the same, the department has come up in appeal. 4.1 The first contention advanced by the department is that the Commissioner (Appeals) erred in holding that the reopening of the assessment was invalid. It is pointed out by the department that in the original assessment, the ITO had allowed the provision to the extent of Rs. 2,46,849, that the appeal by the assessee was only with regard to Rs. 93,024, which had been disallowed by the ITO, that this was the subject-matter of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t income had escaped assessment. 4.4 In the objections filed by the assessee on 26-3-1980 to the draft assessment order issued in connection with the reassessment, the assessee stated that the gratuity trust was constituted in the year 1969, that application for approval was filed before the ITO on 15-12-1969, that the copy of the instrument of the trust and copy of the rules were also filed along with the application, that these have been acknowledged on 17-12-1969 and that the original. deed was filed before the ITO with the covering letter dated 11-3-1970, which was acknowledged on 16-3-1970. It is also stated in the letter that the copy of the application for the sanction of initial contribution at 8.5 per cent, made before the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y sum paid by the assessee by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of the employees under an irrevocable trust could be allowed as a deduction. The further provisions relating to deduction were Part C of the Schedule IV to the Act and the rules in Part XIV of the Rules. Rule 104 relates to initial contributions, with which we are not concerned in the present case. Rule 103 relates to ordinary annual contributions. Under the same, the ordinary annual contribution had to be made on a reasonable basis as may be approved by the Commissioner having regard to the length of service of each employee concerned so, however, that such contribution shall not exceed 8 1/3 per cent of the salary o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits and gains of business or profession '. Sub-section (7) provides that subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision made for the payment of gratuity to the employees. Therefore, to allow the deduction, it must come under clause (b). Clause (b) contains two sub-clauses and the present case falls under sub-clause (ii) which covers any provision made by the assessee for the previous year relevant to any assessment year commencing on or after 1-4-1973, but before 1-4-1976. The assessment year in the present case is 1975-76. Under sub-clause (ii), a provision, which satisfies the three conditions mentioned in the sub-clause, will be allowable to the extent the amount of such provision doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the assessment of the assessee, the assessees are entitled to have the assessments made and completed in accordance with the circular. But we are inclined to accept the contention of the department that the circular now relied upon by the assessee is only a general one explaining the effect and scope of section 40A(7). The circular only paraphrases the provisions of the sub-section. There is nothing in the circular which would indicate that the Board required the ITOs to ignore rule 103 while dealing with case falling under section 40A(7). The circular will, therefore, be of no help to the assessee in deciding the present issue. The assessee is, however, entitled to succeed for the reasons given earlier. 5.6 In the light of what is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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