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TMI Blog1992 (11) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... as required under the Incometax Act, 1961, for the assessment year 1974-75 ?" We have heard Sri Shekhar Srivastava, learned standing counsel for the Commissioner and Sri Bharatji Agarwal, learned counsel for the assessee-respondent. The proceedings relate to the assessment year 1974-75, the accounting period for which had ended on September 30, 1973. The assessee had claimed a deduction of Rs. 75,930 as an expenditure representing its contribution to the employees' gratuity fund. The Income-tax Officer disallowed the same as had been done in the past. The matter ultimately reached the Tribunal which, following its own order passed in the appeal for the assessment year 1972-73, deleted the disallowance. In its order, the Tribunal reprod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uity fund is coming up from the assessment year 1964-65 onwards. A copy of the Tribunal's order for the assessment year 1964-65 has been annexed to this reference and perusal of the relevant discussion as contained in paragraph 21 of that order reveals that the deduction claimed by the assessee on account of contribution to the gratuity fund was declined on the ground that the gratuity fund was not approved by the Commissioner of Income-tax. The Tribunal held that the deduction is admissible under section 28 or 37(1) read with section 40(a)(iv) of the Act. This reasoning had been followed from year to year and as the Tribunal's order under reference would show it has allowed the deduction following its order for the assessment year 1972-73 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made the contribution in question, had not been approved, the necessary requirements of section 36(1)(v) were not met and, therefore, the deduction was not allowable. Learned counsel for the assessee, on the other hand, relied on Madho Mahesh Sugar Mills (P.) Ltd. v. CIT [1973] 92 ITR 503 (All), in which this court, while dealing with the proceedings for the assessment year 1962-63, held that a provision for gratuity made in compliance with an order of the Uttar Pradesh Government was allowable as a deduction. Reference to section 36(1)(v) was made on behalf of the Revenue before the High Court and it was held that this section was not applicable as the amount was deductible in the computation of the gross profit itself. Reliance was also p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) the provision is made in accordance with an actuarial valuation of the ascertainable liability of the assessee for payment of gratuity to his employees on their retirement or on termination of their employment for any reason ; (2) the assessee creates an approved gratuity fund for the exclusive benefit of his employees under an irrevocable trust, the application for the approval of the fund having been made before the first day of January, 1976 ; and (3) a sum equal to at least fifty per cent. of the admissible amount, or where any amount has been utilised out of such provision for the purpose of payment of any gratuity before the creation of the approved gratuity fund, a sum equal to at least fifty per cent. of the admissible am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, when the employees retired or their services were terminated. Until then, the right to receive gratuity is a contingent right and the liability to pay gratuity continues to be a contingent liability qua the employer. The Supreme Court after discussing the various provisions of the Act and the various rulings observed as follows (at page 599) : " It would thus be apparent from the analysis aforesaid that the position till the provisions of section 40A(7) were inserted in the Act in 1973 was as follows : (1) Payments of gratuity actually made to the employee on his retirement or termination of his services were expenditure incurred for the purpose of business in the year in which the payments were made and allowed under section 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40A(7). The deduction could not be allowed on general principles under any other section of the Act because sub-section (1) of section 40A makes it clear that the provisions of the section shall have effect notwithstanding anything to the contrary contained in any other provision of the Act relating to the computation of income under the head 'Profits and gains of business or profession' or, in other words, it means that section 40A would have effect notwithstanding anything contained in sections 30 to 39 of the Act." Thus, the answer to the question referred by the Tribunal is concluded by the aforesaid judgment of the apex court and we answer the question as reproduced above in the negative in favour of the Revenue holding that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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