TaxTMI 
TaxTMI 
1998 (4) TMI 46
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Undertakings (Acquisition) Act, 1973. The Inspecting Assistant Commissioner of Income-tax (Assessment), Trichy, has disallowed the provision so made on the ground of non-complying with the provisions adumbrated under section 40A(7) of the Income-tax Act, 1961 (Act No. 43 of 1961)-for short "I.T. Act"). The Commissioner of Income-tax (Appeals)-VI, Madras, also agreed with the Inspecting Assistant Commissioner of Income-tax. Before the Income-tax Appellate Tribunal, Madras Bench "D", Madras (for short "the Tribunal"), the assessee argued that section 40A(7) was introduced by the Finance Act, 1975, With retrospective effect from April 1, 1973. The conditions to be satisfied by the assessee in respect of the assessment years 1973-74 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....representing Mr. C. V. Rajan, learned junior standing counsel for the Revenue, were heard. Section 40A(7)(a) and (b)(i) and (ii) of the Income-tax Act-relevant for our present purpose---reads as under : "40A. (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 any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (b) Nothing in clause (a) shall apply in relation to--- (i) any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuit....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 1977. Explanation 1.---For the purpose of sub-clause (ii) of clause (b) of this sub-section, 'admissible amount' means the amount of the provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason, to the extent such amount does not exceed an amount calculated at the rate of eight and one-third per cent. of the salary (as defined in clause (h) of rule 2 of Part A of the Fourth Schedule) of each employee entitled to the payment of such gratuity for each year of his service in respect of which such provision is made. Explanation 2.---For the removal of doubts, it is hereby declared that where any provision made by the assessee for the payment of g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se (b)(i) excludes from the operation of clause (a) contribution to an approved gratuity fund and amount provided for or set apart for payment of gratuity which would be payable during the year of account. Clause (b)(ii) deals with a situation where the assessee might provide by the spread-over method and provides that such provision would be excluded from the operation of clause (a) provided the three conditions laid down by the sub-clauses are satisfied. The apex court further said that although payment of gratuity is made on retirement or termination of service, it is not for the services rendered during the year in which the payment is made but it is made in consideration of the entire length of service and its ascertainment and comp....