Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(2) of the I.T. Act, 1961, the following questions have been referred to this court: "1. Whether, on the facts and in the circumstances of the case and on a true interpretation of the statutory provisions, the Tribunal was right in upholding the disallowance of the sum of Rs. 2,15,651 (Rupees two lakhs fifteen thousand six hundred and fifty-one only) which was claimed by the assessce as deductible under Section 37 of the Income-tax Act, 1961, on account of provision for payment of gratuity to the employees under the Payment of Gratuity Act, 1972 ? Whether, on the facts and in the circumstances of the case, the provisions of Section 40A(7) of the Income-tax Act, 1961, had no application ?"
(2.) The assessee is a company and the relevant assessment year is 1973-74. Corresponding accounting period ended on 31st December, 1972. Accounts were maintained on mercantile basis. Return of income was filed on the 13th May, 1974, showing a loss of Rs. 1,58,655. The total income, however, was computed at Rs. 88,948 by the ITO in the assessment where a sum of Rs. 2,15,651, being provision for gratuity, was disallowed. The ITO had noticed that an amount of Rs. 28,649 pertaining to the period relevant to the assessment year was only allowable in the assessment. Since the claim was not based oh the actuarial method, according to the ITO, he disallowed the whole amount. The assessee, however, felt aggrieved with the disallowance made in the assessment and preferred an appeal before the AAC. The AAC upheld the disallowance following certain decisions of the Supreme Court.
(3.) The assessee, thereafter, went up in appeal before the Tribunal. The Tribunal observed, inter alia, as follows: "We have given due consideration to the rival submissions and are of the opinion that in view of the overriding provisions in Section 40A(7) of the Income-tax Act, 1961, which was inserted with retrospective effect from 1st April, 1973, by the Finance Act, 1973, the claim of the assessee for deduction of Rs. 15,651 in the instant assessment has been rightly turned down by the authorities below. Learned counsel for the assessee admits before us categorically that the assessee had not fulfilled the provisions of Section 40A(7). In the instant case before us, the Income-tax Officer completed the relevant assessment on 25th September, 1974, and the Appellate Assistant Commissioner disposed of the appeal against the said assessment on 25th January, 1975. Hence, none of the authorities below could get an opportunity of considering the assessee's claim in the light of the provisions of Section 40A(7). Learned counsel has raised the issue of validity of the provisions of Section 40A(7). In view of the decision of the Supreme Court in the case of K. S. Venkataraman and Co. (P.) Ltd. v. State of Madras , that an authority constituted under the Act cannot, unless expressly so authorised, question the validity of the Act or any provision thereof, we are unable to entertain the issue raised by the assessee's learned counsel. No doubt, had there been no provision like Section 40A(7) under the statute, the assessee, in our opinion, would have been entitled to the deduction of Rs. 2,15,651 which was less than the actuarial valuation of Rs. 2,42,281, but as the assessee had not fulfilled the provisions of Section 40A(7), we cannot direct the Income-tax Officer to allow the amount in dispute. In view of the Payment of Gratuity Act, 1972, a liability on account of payment of gratuity, had arisen for the assessee-company towards its employees. This was a statutory liability created by the Payment of Gratuity Act, 1972, which came into force with effect from 21st August, 1972, i.e., during the assessee's accounting period relevant to the assessment year 1973-74, with which we are concerned in the appeal. In view of our discussions above and in view of the provisions of Section 40A(7) of the Income-tax Act, 1961, the amount of Rs. 2,15,651 had been correctly disallowed in the assessment.";