9911796707
TMI Blog1992 (1) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case, the Tribunal was justified in holding that the case of the assessee-company is not covered by the provisions of section 40A(7)(b)(i) of the Act ? " The assessee is a company limited by guarantee and had adopted the mercantile system of accounting. For the assessment years 1977-78 and 1978-79, the assessee-company had debited certain amounts under the head " Gratuity " in the income and expenditure account. The auditors in their footnote to their balance-sheet for both the years have stated as under : "Gratuity. - No provision exists for the payment of gratuity to the employees of the company under the Payment of Gratuity Act, 1972. The accrued liability according to actuarial valuation amounted to Rs. 2,72, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a further appeal before the Tribunal, it was urged on behalf of the assessee that the gratuity amount having been deposited by it in the fund of the employee in respective banks the same should have been allowed. For the Department, on the other hand, it was contended that gratuity was not deductible unless the deposit fulfils the conditions laid down in clause (b) of section 40A(7). Accepting the Department's contention, the Tribunal rejected the claim of the assessee and dismissed the appeal. The Tribunal held that claim of gratuity could be allowed only if the amount was paid by the assessee by way of contribution to an approved gratuity fund for the exclusive benefit of employees under an irrevocable trust. The Tribunal noted the fact ..... 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. " It will thus be seen that notwithstanding any other provision in the Income-tax Act, the provision for future use by the assessee out of its gross profits of the year of account for payment of gratuity to its employees is not, allowable as a deduction in the computation of profits and gains of the year of account unless the case is covered by one or the other of the two sub-clauses of clause (b) of section 40A(7). Sub-clause (i) of clause (b) which alone is relevant for this case would have been attracted only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense. Stressing the use of the non-obstante clause in section 40A, their Lordships observed that the legislative intent was obvious, namely, that even if certain payments or provision made by the assessee were otherwise deductible under section 28 or section 37 of the Act, the same would not be deductible in view of section 40A except in the circumstances indicated therein. A somewhat similar view has been expressed recently by their Lordships of the Madras High Court in the case of Tuttapullum Estates v. CIT [1991] 191 ITR 131. In order, therefore, that the provision for payment of gratuity be admissible as a deduction, it must be shown that the provision was made strictly in the manner laid down in clause (b) of section 40A(7). As alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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