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TMI Blog1994 (11) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... n 40A(7)(b)(i) of the Income-tax Act, 1961, being 'service fund' credited for 1974 and 1975 in view of the approval of the gratuity fund by the Commissioner of Income-tax with effect from July 1, 1975 ? " The assessee is a co-operative society. Its accounting year is the year ended June 30. This reference pertains to the assessment year 1976-77, the corresponding accounting year being the year ended on June 30, 1975. During this accounting year, the assessee kept in its books an account amount called "service fund ".The amount credited to this account was in fact provision made by the assessee for the purpose of payment of sums by way of contribution towards a gratuity fund for the benefit of its employees. During the year ended June 30, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecember 30, 1975, the Income-tax Officer was not justified in disallowing the claim of the assessee for deduction of such amount under section 40A(7) of the Act. The Commissioner accepted the contention of the assessee. The Revenue appealed to the Income-tax Appellate Tribunal. Before the Tribunal, it was contended by the Revenue that the trust fund having been approved with effect from July 1, 1975, there was no approved gratuity fund during the previous year in question and hence the provision cannot be a provision made for the purpose of payment towards an approved gratuity fund. The above contention of the Revenue did not find favour with the Tribunal. The Tribunal held that in view of the recognition of the fund by the Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund " which has been and continues to be approved by the Commissioner in accordance with the rules contained in Part C of the Fourth Schedule ". Rule 2 of Part C of the Fourth Schedule deals with the procedure of approval of a gratuity fund. Sub-rule (1) of rule 2 empowers the Commissioner to accord approval to any gratuity fund which, in his opinion, complies with the requirements of rule 3. Sub-rule (2) requires the Commissioner to communicate, in writing, to the trustees of the fund, the grant of approval " with the date on which the approval is to take effect ". In the instant case, the Commissioner accorded approval to the gratuity fund by his order dated December 30, 1975, and communicated the grant of the approval to the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employment for any reason. (b) Nothing in clause (a) shall apply in relation to--- (i) any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year ; . . . . " According to the assessee, the gratuity fund having been approved by the Commissioner in the next accounting year, the provision made by the assessee for the payment of gratuity to its employees by crediting the amount to the service fund is deductible by virtue of sub-clause (i) of clause (b) of sub-section (7) of section 40A of the Act. On a conjoint reading of clauses (a) and sub-clause (i) of clause (b) of sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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