Gratuity deduction for worker-members fails where approved fund requirements and statutory conditions are not satisfied.

Provision for gratuity to worker-members was treated as falling within the statutory framework for employee gratuity deductions under the Income-tax Act, 1961, and the term "employees" was not read so narrowly as to exclude them where the assessee itself had treated them as employees for gratuity purposes. The deduction nevertheless failed because there was no approved gratuity fund and the conditions in sections 36(1)(v) and 40A(7) were not met. The co-operative authorities' computation of net profit could not override the Act's prescribed method of income computation, and the claim could not be allowed under the general computation provision when the special gratuity provisions were not satisfied.

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Issues: Whether the assessee was entitled to deduction for the provision made towards gratuity for worker-members, and whether such liability could be claimed outside the statutory limits of section 36(1)(v) and section 40A(7) of the Income-tax Act, 1961.

Analysis: The provision for gratuity was held to fall within the statutory scheme governing deductions for employee gratuity liabilities. The expression "employees" was not confined so narrowly as to exclude the worker-members in the assessee-society's establishment, particularly when the assessee itself had treated them as employees for gratuity-related purposes. The claim also failed because there was no approved gratuity fund and the requirements of the relevant deduction provisions were not satisfied. The general contention that the co-operative authorities had declared the net profit could not override the method of computation mandated by the Income-tax Act, 1961. Since the special provisions governing gratuity deductions were not complied with, the claim could not be allowed under the general income-computation provision.

Conclusion: The deduction for provision made towards gratuity was not allowable, and the assessee's claim failed.

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