PRAKASH KRISHNA,J. - (1.) THE Income Tax Appellate Tribunal, Allahabad Bench, Allahabad has referred the following question of law under Section 256 (2) of the Income Tax Act for opinion to this Court: "Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the sum of Rs. 41,790/- representing the premium paid to the L.I.C. securing an insurance against the liabilities arising under the Payment of Gratuity Act, 1972 was not hit by the provisions of Section 40-A (7)(a) of the Income Tax Act, 1961 and was an allowable deduction under Section 37 (1) of the Act?"
(2.) THE matter related to the assessment year 1984-1985. Before the Assessing Officer the assessee Corporation had claimed deduction for an amount of Rs. 41,790 representing the insurance premium paid to the L.I.C. to insure against, all the liabilities that might arise under the Payment of Gratuity Act, 1972. It claimed that the payment of the said amount was an allowable deduction under Section 37 (1) of the Income Tax Act, 1961 (hereinafter referred to as the Act). The said condition did not find favour either with the Assessing Officer or with the Commissioner of Income Tax (Appeals), in appeal. In further appeal, the Income Tax Appellate Tribunal has held that the said amount is permissible deduction. The provisions of Section 40-A (7)(a) are applicable in respect of any provision made for gratuity but the prohibition does not extend to payment of any gratuity which is allowable under sub-clause (b) of Section 40-A (7) of the Act. The Tribunal found that the amount represented the actual payment to the L.I.C. and it was not a provision for gratuity. Ultimately, it was held that the amount was allowable under Section 37 (1) and the prohibition contained in Section 40-A (7)(a) was not applicable to the facts of the case. Heard the learned counsel for the parties.
(3.) THE learned Standing Counsel for the department contends that Section 40-A of the Act will be applicable to the facts of the present case, as the same has overriding effect. Elaborating the argument, it was submitted that the said section opens with non-obstante clause and has an overriding effect over the other provisions of the Act relating to the computation of the income under the head "Profits and gains of business or profession". Shri S.K. Garg, the learned counsel for the respondent assessee, on the other hand, submits that the controversy is covered by a decision of Division Bench of Madras High Court in the case of Kothari Sugars and Chemicals Ltd, v. Commissioner of Income Tax, (1997) 227 ITR 864.;