TaxTMI 
TaxTMI 
2004 (12) TMI 54
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....7. He added a sum of Rs. 33,542 to the income of the assessee which the latter set apart as gratuity payable to the employees. The Commissioner of Income-tax (Appeals), Chandigarh, upheld the addition made by the Assessing Officer on the ground that the gratuity fund had not been approved by the Commissioner of Income-tax. However, the Tribunal accepted the assessee's appeal and allowed deduction to the tune of Rs. 33,542 in lieu of the gratuity fund. It referred to the order dated December 28, 1981, passed in ITA No. 869/Chandi/79 in the case of Kay Iron Works (P) Ltd. and held that non-approval of the gratuity fund by the Commissioner of Income-tax could not be made the basis for disallowance under section 40A(7) of the Act. On an application filed by the Commissioner of Income-tax under section 256(1) of the Act, the Tribunal referred the question of law for the opinion of this court in the following terms: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that the assessee had complied with the provisions of section 40A(7) of the Income-tax Act, 1961, and hence its claim cannot be rejected, though the grat....
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....00] 241 ITR 523 (Mad); CIT v. Official Liquidator, Ahmedabad Manufacturing and Calico Printing Co. Ltd. [2000] 244 ITR 156 (Guj); CIT v. Coimbatore Premier Corporation (P) Ltd. [2000] 244 ITR 753 (Mad) and CIT v. Coimbatore Premier Corporation (P) Ltd. [2000] 246 ITR 626 (Mad) and argued that the deduction in lieu of the amount of gratuity could not have been claimed by the assessee for the assessment year 1978-79 because till then, the gratuity fund had not been approved by the Commissioner of Income-tax. We have thoughtfully considered the respective arguments. In order to appreciate the rival contentions in the correct perspective, it will be useful to notice sections 40A(1) and 40A(7)(a) and (b) of the Act, which read as under: "Section 40A(1) of the Act 40A.(1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head 'Profits and gains of business or profession'. Section 40A(7)(a) and (b) of the Act (7)(a). Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by....
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....assessee makes provision for payment of gratuity in an approved gratuity fund. To put it differently, the provision for gratuity made only in an approved gratuity fund entitles the assessee to claim deduction in the computation of profits and gains of the year of account. In Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585, their Lordships of the Supreme Court interpreted section 40A(7)(a) and (b) of the Act and held that unless the conditions specified in clause (b) are fulfilled, the provision made by the assessee for future use for payment of gratuity to the employees cannot be allowed as a deduction in view of the embargo placed under clause (a) on deduction of amounts provided for future use in the year of account for making the ultimate liability for payment of gratuity. After making reference to the non obstante clause in section 40A, the Supreme Court observed that the legislative intent was obvious that even if certain payments or provision made by the assessee were otherwise deductible under section 28 or 37, the same would not be deductible in view of section 40A of the Act except in the circumstances indicated therein. In Bitoni Lamps Ltd. v. CIT [1989] 178 ITR 4....
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....g and Calico Printing Co. Ltd. [2000] 244 ITR 156, a Division Bench of the Gujarat High Court held as under: "The claim was rejected in view of the provisions of section 40A(7) of the Act of 1961, which was enacted with retrospective effect from April 1, 1973, requiring creation of an approved gratuity fund as a necessary condition before any provision for gratuity could be allowed under section 36(1)(v) of the Act. The assessee's claim was founded either on section 28 or 37 of the Act. An amount of Rs. 1,54,00,000 being accrued liability of gratuity payable to the employees was debited in the books of account of the assessee in the profit and loss account. Another sum of Rs. 66,85,759 was not at all debited to the profit and loss account or claimed as provision for accrued liability on account of gratuity. The issue is now no more res integra in view of the decision in the case of Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 (SC) which lays down that any allowance on account of any provision made for gratuity which has accrued during the course of the year can only be considered on satisfying the conditions of section 40A(7) and not otherwise." In CIT v. Coimbatore Prem....
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....9. 3. In addition to the discrepancies referred to above, it was also noticed from the receipts and payment accounts and balance-sheets of the fund as on March 31,1976, March 31,1977 and March 31, 1978 that a part of the investible one has remained deposited in the savings bank account in the Punjab and Sind Bank Ltd., in contravention of the provisions of rule 101 read with rule 67 of the Income-tax Rules, 1962. The fund was, accordingly, given an opportunity of being heard on December 26, 1979 when Sh. Mohinder Allag, accounts officer of the firm attended and stated that savings bank account was closed on March 26, 1979, and the current account had been opened in the Punjab and Sind Bank Ltd., on that date. According to him, the provisions of rule 101 read with rule 67 were hence complied with by the trust. After going through the amended trust deed, etc., it was pointed out to Shri Allag that the requisite conditions for grant of approval had been fulfilled only with effect from March 26, 1979, since the amended deed had been executed on October 10, 1978, and the end money had been invested in accordance with the rules only with effect from March 26, 1979. It was, hence made ....