Approved gratuity fund provisions remain deductible, and actual gratuity payments are separately allowable under the statutory exceptions.

A gratuity provision made on an actuarial basis for an approved gratuity fund already in existence was deductible under the statutory exceptions, because the prohibition on gratuity provisions did not apply to such a fund-backed liability. The transitory payment condition in section 40A(7)(b)(ii) was treated as a hardship-relief measure for the retrospective amendment and not as a limitation on cases covered by section 40A(7)(b)(i) or section 36(1)(v). The amount actually paid during the year was also separately allowable on payment basis.

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Issues: Whether the assessee was entitled to deduction of the gratuity provision made during the accounting year in respect of an approved gratuity fund, and whether the payment made during the year was allowable separately.

Analysis: The assessee had created an approved gratuity fund before the relevant accounting year and had made a provision on an actuarial basis. The prohibition against deduction of gratuity provisions under section 40A(7) did not apply so as to deny deduction where the provision was towards an approved gratuity fund already in existence. The transitory payment condition in section 40A(7)(b)(ii) was intended to relieve hardship caused by the retrospective insertion of the provision and was not meant to control cases governed by section 40A(7)(b)(i) or section 36(1)(v). The amount actually paid during the year was also independently deductible on payment basis.

Conclusion: The assessee was entitled to deduction of both the provision for gratuity and the amount paid during the year.

Ratio Decidendi: A gratuity provision made towards an approved pre-existing gratuity fund is deductible under the statutory exceptions, and the transitory payment requirements inserted to soften the retrospective amendment do not govern such cases.

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