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2007] 291 ITR 269 [2007] 160 Taxman 316 (Karnataka) HIGH COURT OF KARNATAKA Motor Industries Co. Ltd. v. Commissioner of Income-tax, Bangalore R. GURURAJAN AND JAWAD RAHIM, JJ. IT REFERRED CASE NOS. 617 AND 618 OF 1998 AUGUST 25, 2006 I. Section 40A(7) of the Income-tax Act, 1961 - Business disallowance - Gratuity - Assessment year 1978-79 - Assessee claimed deduction of certain sum being additional liability for gratuity in respect of year 1977 as a result of actuarial valuation - Tribunal held that amount in question represented additional liability and was nothing but a provision created in accounts of assessee in year in question inasmuch as amount had not been expended in relevant assessment year and disallowed assessee's claim under section 40A(7) - Whether in view of section 40A(7)(b), assessee was entitled to deduction under section 40A(7) - Held, yes II.Section 28(i), of the Income-tax Act, 1961 - Business income - Chargeable as - Assessment year 1978-79 - Whether foreign exchange gain earned by assessee in course of export made by it was revenue in nature and addition of same was to be made to income of assessee - Held, yes FACTS - I The assessee claimed deduction of certain sum being additional liability for gratuity in respect of year 1977, as a result of actuarial valuation. The Assessing Officer disallowed the assessee's claim. The Tribunal held that the amount in question represented the additional liability, over and above, the premium paid to the LIC under Group Gratuity Life Insurance Scheme and was nothing but a provision created in the accounts of the assessee in year in question inasmuch as the amount had not been expended in relevant assessment year and allowed the appeal of the revenue. On petition : HELD - I A reading of section 40A would show that certain payments are not deductible in certain circumstances. A reading of section 40A(1) would show that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act, relating to the computation of income under the head 'Profits and gains of business or profession'. Section 40A(7)(a) is subject to section 40A(7)(b).…

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