TaxTMI 
TaxTMI 
1992 (1) TMI 36
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....e-tax Act, 1961 ? 2. Whether, on the facts and in the 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 acco....
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....same view and negatived the assessee's claim. On 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....
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....ollowing conditions are fulfilled, namely : (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 fo....