Gratuity fund contribution deductible as business expenditure despite lack of approved fund status under income-tax law.

A contribution to an assessee's own gratuity fund was treated as deductible business expenditure, even though the fund was not an approved gratuity fund under section 36(1)(v) of the Income-tax Act, 1961. The allowance provision was distinguished as applying only to contributions to approved gratuity funds created under a trust, while the present claim was considered at the stage of computing business income under section 28. The court followed its earlier view and supporting High Court decisions, and the deduction was allowed in favour of the assessee.

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Issues: Whether the assessee was entitled to deduction for contribution made to its own gratuity fund, though the fund was not an approved gratuity fund under section 36(1)(v) of the Income-tax Act, 1961.

Analysis: The contribution was held to be a permissible business expenditure deductible in computing gross profits. The allowance under section 36(1)(v) was distinguished on the footing that it applies to contributions to approved gratuity funds created under a trust, whereas the present claim fell to be considered at the stage of computation of business income under section 28. The court followed its earlier view and the supporting decisions of other High Courts.

Conclusion: The assessee was entitled to the deduction, and the question was answered in favour of the assessee and against the department.

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