Ajit K. Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, relating to the assessment year 1976-77, the following question of law has been referred 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. 1,16,081 representing provision for payment of gratuity was an allowable deduction in computing the total income for the assessment year 1976-77 ?"
(2.) The dispute relates to the assessee's claim for deduction of Rs. 1,43,668 being provision towards payment of gratuity. The Income-tax Officer allowed Rs. 27,587, but disallowed the balance of Rs. 1,16,081 on the ground that the gratuity fund had not been approved by the Commissioner of Income-tax. On appeal, the Commissioner of Income-tax (Appeals) held that the Income-tax Officer was not justified in disallowing this claim inasmuch as the assessee had fulfilled all the requirements for this allowance and had applied for approval of the gratuity fund on December 31, 1975. It was already obliged to contribute this amount to the fund and, therefore, the claim for deduction should have been allowed.
(3.) The Department came up in second appeal before the Tribunal which endorsed the decision of the Commissioner of Income-tax (Appeals) with the following observations : "We have heard the submissions of both the parties, considered the facts of the case and are of the opinion that the order of the Commissioner of Income-tax (Appeals) on this point does not require any change. There was no dispute about the fact that the assessee was under an obligation to contribute the disputed amount to the gratuity fund. Admittedly, the assessee made an application for approval of its gratuity fund on December 31, 1975, to the Commissioner of Income-tax. In view of this fact, it has to be held that the Commissioner of Income-tax (Appeals) was justified in allowing the assessee's claim for deduction of Rs. 1,16,081 which was contributed by it towards the gratuity fund. We are of the opinion that the approval of the Commissioner of Income-tax towards the gratuity fund is merely a formality in the absence of which the assessee's claim for deduction towards the payment of gratuity fund cannot be disallowed. We, therefore, uphold the order of the Commissioner of Income-tax (Appeals).";