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TMI Blog1986 (7) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; (c) 31-12-1977 2,25,932 -------- Total 7,25,972 -------- The incremental liability for each of the years had been determined on an actuarial basis. The ITO disallowed the claim on the ground that the assessee had not actually made any contribution to the employees' gratuity fund. According to the ITO, the provisions of section 40A(7)(b)(ii) of the Income-tax Act, 1961, would apply and the conditions therein were not satisfied (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Finance Act, 1975, but with retrospective effect from 1-4-1973. The learned counsel submitted that he was placing reliance only on the provisions of section 40A(7)(b)(i) for claiming the deduction. According to him, the assessee's case squarely fell within such provision and the deduction had to be allowed. 4. The learned departmental representative, on the other hand, relied on the decision of the Supreme Court in the case of Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585. According to the learned departmental representative, the observations of the Supreme Court in the aforesaid case placed the matter beyond all doubts, and the issue had to be decided in favour of the revenue. 5. We have considered the rival submissions. The assessee has based its claim for deduction only with reference to the provisions of section 40A(7)(b)(i), which are as under : "(7)(a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (b) Nothing in clause (a) sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "The Payment of Gratuity Act came into force on 16th September, 1972. Section 40A(7) was introduced in the Income-tax Act with effect from 1st April, 1973, and was made applicable to the assessment year 1973-74 and all the subsequent years. Section 40A is an overriding section and will apply notwithstanding anything contained in any other provisions of this Act relating to computation of income under the head 'Profits or gains of business or profession'. The section heading is 'Expenses or payments not deductible in certain circumstances'. Section 40A(7)(a) prohibits deduction of any provision by whatever name called made by an assessee for the payment of gratuity to his employees on their retirement or termination of their employment for any reason. This is, however, subject to the provisions of clause (b). Clause (b) lays down the conditions which have to be fulfilled by an assessee in order to get out of the mischief of the provisions contained in section 40A(7)(a). A provision to pay an amount which has become due and payable during the previous year will have to be allowed. A provision for payment of gratuity of a sum by way of contribution towards an approved gratuity fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e overriding effect over the other provisions of the Act. Therefore, in interpreting or in trying to find out the meaning of that provision, one should, if possible, and in this case it is not at all straining, give effect to that intention and not to make a nonsense of that intention. Clause (a) of the said sub-section provides that no deduction will be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or termination of their services for any reason. The expression 'provision' has not been defined in the Act and is not used in any artificial sense but in its ordinary meaning. This is clear from the words 'whether called as such or by any other name' occurring in the sub-section. According to Webster, 'provision' in its ordinary sense, means 'something provided for future use'. On a plain construction of clause (a) of sub-section (7) of section 40A of the Act, what it means is that whatever is provided for future use by the assessee out of the gross profits of the year of account for payment of gratuity to employees on their retirement or on the termination of thei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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