Judgment:
1. On an application under Section 256(2) of the Income-tax Act, 1961, this court has directed the Tribunal to refer the following question, sot out at page 2 of the application, for our opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the liability arising in the relevant previous year under the Payment of Gratuity Act has to be allowed as deduction irrespective of the fact whether the assessee maintained an approved gratuity fund or not ?'
2 In pursuance of our direction, the Tribunal has referred the aforesaid question for our opinion.
3. The assessee is Anglo India Jute Mills Co. Ltd., and the assessment year involved is 1982-83. The assessee is a manufacturer of jute goods and claimed the deduction of Rs. 19,48,050 as contribution to the approved gratuity fund for the year. Apart from above, the assessee claimed deduction of Rs. 3,11,036 as actual payment of gratuity. The Assessing Officer found that when the assessee maintained an approved gratuity fund, the contribution of Rs. 19,48,050 was already allowed under Section 36(1)(v) of the Income-tax Act, 1961, there is no question of claiming the deductionon actual payment of gratuity at the time of retirement of the employee. He accordingly disallowed the claim of deduction for Rs. 3,11,036. In appeal, the Commissioner of Income-tax (Appeals), following the decision of the Supreme Court in the case of Shree Sajjan Mills Ltd. v. CIT : 1986ECR276(SC) , confirmed the disallowance.
4. In appeal before the Tribunal, the Tribunal has allowed the claim of the assessee. The Tribunal has set aside the order of the Commissioner of Income-tax (Appeals), but observed that the liability arising in the relevant previous year under the Payment of Gratuity Act has to be allowed as a deduction irrespective of the fact whether the assessee maintained an approved gratuity fund or not. According to the Tribunal, the provision made for the contribution towards the approved gratuity fund is given separate treatment from the provision for the purpose of payment that has become payable during the previous year.
5. It appears, the Tribunal has committed the error ignoring the basic fact that once the deduction is allowed at the time of contribution to the approved gratuity fund or made a provision for contribution in the approved gratuity fund, if any payment is made out of the approved gratuity fund, that will result in double deduction. That cannot be the intention of the Legislature. To remove this doubt, the Legislature has inserted the Explanation in Sub-section (7) of Section 40A of the Act, which reads as under :
'For the removal of doubts, it is hereby declared that where any 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 has been allowed as a deduction in computing the income of the assessee for any assessment year, any sum paid out of such provision by way of contribution towards an approved gratuity fund or by way of gratuity to any employee shall not be allowed as a deduction in computing the income of the assessee of the previous year in which the sum is so paid.'
6. Considering the Explanation inserted to remove the doubt, if any, which made it clear that once the provision is made by the assessee for the payment of gratuity to his employees on their retirement and the deduction has been allowed in computing the income of the assessee for any assessment year, if any sum is paid out of such approved gratuity fund to any employee or liability does arise at the time of retirement, deduction shall not be allowed a second time in computing the income of the assessee of the previous year in which the sum is actually paid.
7. In the result, we answer the question in the negative, i.e., in favour of the Revenue and against the assessee, i.e., the Tribunal was not justified in directing that the payment of gratuity be allowed as a deduction irrespective of the fact whether the assessee maintained an approved gratuity fund or not.
8. The reference so made stands disposed of accordingly.
9. All parties are to act on a xerox signed copy of this dictated order on the usual undertaking.