TMI Blog2009 (7) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... Judgment: Prakash Krishna J.- The Income-tax Appellate Tribunal, Allahabad Bench, Allahabad has referred the following question of law under section 256(2) of the Income-tax Act, 1961 for opinion to this court : "Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the sum of Rs. 41,790 representing the premium paid to the LIC securing an insurance against the liabilities arising under the Payment of Gratuity Act, 1972 was not hit by the provisions of section 40A(7)(a) of the Income-tax Act, 1961 and was an allowable deduction under section 37(1) of the Act ?" 2. The matter related to the assessment year 1984-85. Before the Assessing Officer, the assessee-corporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Act relating to the computation of the income under the head "Profits and gains of business or profession". Shri S. K. Garg, the learned counsel for the respondent-assessee, on the other hand, submits that the controversy is covered by a decision of Divi-sion Bench of the Madras High Court in the case of Kothari Sugars and Chemicals Ltd. v. CIT [1997] 227 ITR 864. 5. Considered the respective submissions of the learned counsel for the parties and perused the record. 6. It has been found by the Assessing Officer that a sum of Rs. 41,790 has been debited as gratuity in the profit and loss account. It has been further found that there is no compliance with the provisions of section 40A(7) of the Income-tax Act, which r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (7) of section 40A in the following words (page 601) : "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 their services would not be allowed as deduction in the computation of profits and gains of the year of account. The provision of clause (a) was made subject to clause (b). The embargo is on deductions of amounts provided for future use in the year of account for meeting the ultimate liability to payment of gratuity. Clause (b)(i) excludes from the operation of clause (a) contribution to an ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptember 16, 1972, as a statutory liability under the said Act, Although payment of gratuity is made on retirement or termination of service, it was not for the service rendered during the year in which the payment is made but it is made in consideration of the entire length of service and its ascertainment and computation depend upon several factors." 9. The aforesaid judgment of the apex court came up for consideration before this court in Kumson Motor Owners Union Ltd. v. CIT [1993] 201 ITR 601 (All) wherein after noticing the judgment of Shree Sajjan Mills Ltd. [1985] 156 ITR 585 (SC) the following was held (page 605) : "In order, therefore, that the provision for payment of gratuity be admissible as a deduction, it must be shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Kothari Sugars and Chemicals Ltd. [1997] 227 ITR 864 relied upon by the assessee. In this case also, the actual payment of gratuity was held to be allowable deduction under section 36(1)(v) of the Act. In that context the following observation made therein which was heavily relied upon by the learned counsel for the assessee should be understood (page 865 of 227 ITR) : "The liability, if any, arising during the accounting year, is fully covered by the payment of premium and for this reason it is allowable as a deduction under section 37 of the Act though it may be con-sidered even under section 36(1)(v) of the Act." 11. Even otherwise also, we find that the attention of the hon'ble judges of the Madras High Court was not in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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