Gratuity provision deduction for earlier assessment year upheld; later statutory restriction did not apply to the claim.

For assessment year 1972-73, the deduction allowed for a provision made towards gratuity was considered in light of section 40A(7), but that provision, introduced later with effect from 1 April 1973, did not govern the year in question. The gratuity provision had been allowed under section 37, and the Revenue failed to show any basis for treating the allowance as referable on the issue raised. The refusal to direct a reference under section 256(2) was therefore upheld, as no error was found in the High Court's decision not to call for a reference on admissibility of the deduction.

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Issues: Whether, for assessment year 1972-73, the Tribunal's allowance of deduction for provision made towards gratuity was liable to be referred for the High Court's opinion under section 256(2) of the Income-tax Act, 1961, despite section 40A(7) having been introduced later with effect from assessment year 1973-74.

Analysis: The relevant assessment year was 1972-73. Section 40A(7) of the Income-tax Act, 1961 was introduced by the Finance Act, 1975 with retrospective effect from 1 April 1973, and therefore did not apply to the assessment year in question. The assessee's claim for deduction of the gratuity provision had been allowed under section 37 of the Income-tax Act, 1961. In these circumstances, no error was found in the High Court's refusal to direct a reference on the admissibility of the deduction.

Conclusion: The deduction for provision for gratuity for assessment year 1972-73 was not shown to be referable or disallowable on the basis urged by the Revenue, and the refusal to call for a reference was upheld.

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