B.P.SARAF, J. - (1.) BY this reference under section 256(1) of the Income -tax Act, 1961, at the instance of the Revenue, the Income -tax Appellate Tribunal has referred the following question of law to this court for opinion : 'Whether, on the facts and in the circumstances of the case, the Tribunal erred in allowing a deduction of Rs. 57,539 under the provisions of section 40A(7)(b)(i) of the Income -tax Act, 1961, being 'service fund' credited for 1974 and 1975 in view of the approval of the gratuity fund by the Commissioner of Income -tax with effect from July 1, 1975 ?'
(2.) THE assessee is a co -operative society. Its accounting year is the year ended June 30. This reference pertains to the assessment year 1976 -77, the corresponding accounting year being the year ended on June 30, 1975. During this accounting year, the assessee kept in its books an account called 'service fund'. The amount credited to this account was in fact provision made by the assessee for the purpose of payment of sums by way of contribution towards a gratuity fund for the benefit of its employees. During the year ended June 30, 1975, the assessee credited to the said account a sum of Rs. 61,657 as provision for the year 1974 and another sum of Rs. 10,882 as provision for the year 1975. By a deed of trust, the assessee created an employees' gratuity fund under the name and style of 'Mumbai Khoka Utpadak Sahakari Kendra Limited'. The trustees of the said gratuity fund applied to the Income -tax Commissioner for approval of the gratuity fund under rule 2(1) of Part C of the Fourth Schedule to the Act. This application was made on December 26, 1975. The Commissioner of Income -tax accorded approval to the said trust with effect from July 1, 1975, by his order dated December 30, 1975.
(3.) WHEN the Income -tax Officer made the assessment of the assessee for the assessment year 1976 -77, he made the following additions to its income : Rs. Service fund credited for 1974 61,657 Less : Already added earlier 15,000 - - - - - - - - - - - - - - - - - - - 46,657 Service fund for 1975 10,882 - - - - - - - - - - - - - - - - - - - 57,539 - - - - - - - - - - - - - - - - - - - ;