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TMI Blog1982 (7) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 25-1-1974 and applied for recognition to the Commissioner on 7-2-1974. The approval was also given on 18-4-1977 with effect from 7-2-1974. For the year ended 31-3-1974, the assessee had ascertained the initial and incremental liability so far at Rs. 5,34,841 and had also made over Rs. 5 lakhs (which was allowed as a deduction) on 31-3-1974 to the trustees of the gratuity fund. The difference of Rs. 3,48,418 is the opening balance as on 1-4-1974. We are concerned with the provision for the year ending 31-3-1975. The relevant account for the year ending 31-3-1975 is as under : Outstanding worker's gratuity account : Account year ended 31st March., 1975 . Asst. yr. 1975-76 Rs. P. Rs.P. 1-4- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-1976 or on or before 31-3-1977. It was for this reason, the disallowance was made. The first appellate authority confirmed the disallowance. The assessee is, therefore, in second appeal before us. 3. The learned counsel for the assessee claimed that there has been a misunderstanding regarding the provisions of the Act on the part of the authorities. The provision has been made on actuarial basis. There is no dispute on this point. The assessee had also filed a certificate from a qualified actuary in this regard. Though, section 40A(7)(a) bars the deduction of provision because of the insertion of section 40A(7) by the Finance Act, 1975, with retrospective effect from 1-4-1973, there are two exceptions. The first exception is available i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognition if a provision made towards gratuity fund is not made good by payment within reasonable time. In fact the assessee has made 50 per cent in the same year and the balance later though not before 31-3-1977, the date which the department considers as the dead-line. He claimed that there is no such dead-line for those assessees who had already a pre-existing gratuity fund on the date of provision. This, in short, was the gist of the arguments advanced by the learned counsel for the assessee. It was alternatively argued that at least the payment of Rs. 50,000 should have been allowed by the authorities under section 36(1)(v) of the Act on the payment basis. 4. The learned departmental representative, on the other hand, relied upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Act, 1975, with effect from 1-4-1973 was that a provision made on an actuarial or scientific basis towards gratuity by an assessee who keeps accounts on mercantile basis was allowable as a deduction following the rationale of the decision of the House of Lords in Southern Railway of Peru Ltd. v. Owen (Inspector of Taxes) [1957] 32 ITR 737, approved by the Supreme Court in Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53. In fact it was the departmental practice also. However, a provision made without setting apart the funds for the purpose, it was decided, cannot be allowed. Only provision in cases where there is already a pre-existing approved gratuity fund was considered allowable. This is the principle embodied in sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of gratuity for which a liability has arisen during the year. There is a transitory provision enacted in clause (b)(ii) of section 40A(7) to soften the hardship that would arise by the retrospective operation given to section 40A(7) from 1st April, 1973, while it was actually enacted in 1975 . . . ." It must be pointed out that there are no qualifying words in clause (b) which would justify the inference that sub-clause (i) of clause (b) would apply to all the assessees for the assessment year 1973-74 to the assessment year 1976-77. Where an assessee satisfies either section 40A(7)(b)(i) or section 36(1)(v), one has no need to took into section 40A(7)(b)(ii). Hence, in this case the assessee will be entitled to the full allowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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