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TMI Blog1980 (8) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... ng accounting period ended on 31st December, 1972. Accounts were maintained on mercantile basis. Return of income was filed on the 13th May, 1974, showing a loss of Rs. 1,58,655. The total income, however, was computed at Rs. 88,948 by the ITO in the assessment where a sum of Rs. 2,15,651, being provision for gratuity, was disallowed. The ITO had noticed that an amount of Rs. 28,649 pertaining to the period relevant to the assessment year was only allowable in the assessment. Since the claim was not based on the actuarial method, according to the ITO, he disallowed the whole amount. The assessee, however, felt aggrieved with the disallowance made in the assessment and preferred an appeal before the AAC. The AAC upheld the disallowance following certain decisions of the Supreme Court. The assessee, thereafter, went up in appeal before the Tribunal. The Tribunal observed, inter alia, as follows: " We have given due consideration to the rival submissions and are of the opinion that in view of the overriding provisions in section 40A(7) of the Income-tax Act, 1961, which was inserted with retrospective effect from 1st April, 1973, by the Finance Act, 1973, the claim of the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned in this reference. The Tribunal found, as we have noticed before, that there was a valuation of Rs. 2,42,281 on the actuarial method and the Tribunal found that s. 40A(7) of the I.T. Act, 1961, would be attracted and as the condition laid down by the sub-section had not been fulfilled, on which there was no dispute, the Tribunal was unable to allow the assessee's appeal. Before we proceed further, it is necessary to refer to the scheme of the Payment of Gratuity Act of 1972. The Payment of Gratuity Act of 1972 is an Act to provide for a scheme for payment of gratuity to the employees engaged in factories, mines, oil fields, plantation, ports, railway companies, shops and other establishments and for matters concerned thereof or incidental thereto. Section 4 of the Act enjoins that gratuity shall be payable to an employee on the termination of his employment ,after he has rendered continuous service for not less than five years, and there are three contingencies, viz., on his superannuation, or on his retirement or resignation, or on his death or disablement due to accident or disease. There were certain other Explanations, provisos and special requirements with, which we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amounts not deductible ", s. 40 stipulates that, notwithstanding anything to the contrary in ss. 30 to 39, certain expenditures shall not be deducted in computing the income chargeable under the head " Profits and gains of business or profession ". We are also not concerned with that section. Section 40A is the section with which we are directly concerned. Sub-section (1) of s. 40A stipulates that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provisions of the said Act relating to the computation of income under the head " Profits and gains of business or profession ". The income from profits and gains of business or profession has to be computed by allowing deductions contemplated by the different sub-clauses of s. 36 or even in respect of other items not included in the different subclauses of s. 36. Under s. 37, it is stipulated that any expenditure which is laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head " Profits and gains of business or profession ". It is important to bear this aspect in mind because i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the admissible amount as reduced by the amount so utilised, is paid by the assessee by way of contribution to the approved gratuity fund before the Ist day of April, 1976, and the balance of the admissible amount or, as the case may be, the balance of the admissible amount as reduced by the amount so utilised, is paid by the assessee by way of such contribution before the Ist day of April, 1977. " We are leaving out the Explanations which are not necessary for our present purpose. Therefore, sub-s. 7(a) stipulates that subject to the provisions of cl. (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. But, in order to attract cl. (a), the conditions under cl. (b) are required to be fulfilled. Now, it is a common case that though the condition contemplated by cl. (b) of sub-cl. (ii)(1) has been fulfilled, the other two requirements have not been fulfilled. Learned advocate for the assessee drew our attention to the observations in Craies on Statute Law, 7th edn., at pp. 97 and 100, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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