TMI Blog1993 (9) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... the order dated July 31, 1980, passed by it in I.T.A. No. 8541/Ahd of 1979. Facts: The assessee-company runs a textile mill and manufactures silk cloth out of yarn purchased. The assessee-company submitted return of income for the assessment year 1973-74 showing loss of Rs. 2,88,080. The assessee had made a provision for gratuity amounting to Rs. 9,90,172 on actuarial valuation. Before the Income-tax Officer, the assessee claimed deduction of the said amount. The Income-tax Officer took the view that the conditions specified in sub-section (7) of section 40A of the Act for the admissibility of the deduction of gratuity were not satisfied and, therefore, disallowed the said claim. The assessee preferred an appeal before the Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interests of the Revenue. The Commissioner of Income-tax took the view that the provision for the previous year made in section 40A, sub-section (7) of the Act, would cover only actual liability, which would be the amount of gratuity liability of the year in which the provision was made without taking into consideration the accrued liability and, therefore, the actuarial valuation covering all the past liabilities of the assessee would not be entitled to deduction. He also took the view that from the accounts it was evident that the total salary and dearness allowance for the accounting period relevant to the assessment year 1973-74 was Rs. 26,89,808 and the admissible amount at the rate of eight and one-third per cent. of the salary wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Ahd of 1979. The Tribunal, therefore, drew up the statement of case and has made reference of the following three questions of law for the opinion of this court: "(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the order passed by the Commissioner of Income-tax was illegal on anyone of the grounds, namely, (a) that the basis of initiation of proceedings by the Commissioner of Income-tax was wrong; (b) that the order passed by the Income-tax Officer giving relief had merged in the order of the Appellate Assistant Commissioner and that, therefore, the Commissioner of Income-tax could not exercise powers under section 263 in respect thereof ? (2) Whether, on the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g been granted by the Commissioner of Income-tax to the gratuity fund created by it. The assessee had produced necessary evidence showing that approval had been granted by the Commissioner of Income-tax to the gratuity fund created by it and, therefore, by an order dated, March 31, 1977, the Income-tax Officer had allowed the deduction claimed by the assessee. Against that order of the Income-tax Officer, the Revenue had not filed any appeal before the Appellate Assistant Commissioner and, therefore, it cannot be said that the order dated March 31, 1977, passed by the Income-tax Officer had merged into the order of the Appellate Assistant Commissioner which was passed on May 27, 1976. On the facts and in the circumstances of the case, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Tribunal was not justified in allowing deduction of Rs. 9,90,172 has no substance. It may be noted that earlier the subject-matter as to allowability of contribution towards the approved gratuity fund was made in section 36(1)(v) of the Act. For and from the assessment year 1973-74, the allowability of any such provision is governed by section 40A(7) of the Act and not on general principles because of the fact that the provisions of section 40A(7) of the Act have overriding effect by virtue of the non obstante clause. Under the new section 40A(7) inserted by the Finance Act, 1975, with retrospective effect from April 1, 1973, no deduction is to be allowed in the computation of profits and gains of a business or profession in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d relating to the assessment year 1973-74 was concerned. In view of the provisions of Explanation 1 to sub-section (7) of section 40A of the Act, in our opinion, admissible amount means the amount of provision made by the assessee for the payment of gratuity to its employees on the retirement or on the termination of their employment for any reason to the extent such amount does not exceed an amount calculated at the rate of eight and one-third per cent. of the salary of each employee entitled to the payment of such gratuity for each year of his service in respect of which such provision is made. The gratuity amount in question was worked out on actuarial valuation and the said amount was paid by way of contribution to the approved gratuity ..... X X X X Extracts X X X X X X X X Extracts X X X X
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