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Section 37(1), read with sections 36(1)(v) and 40A of the Income-tax Act, 1961 - Business expenditure - Allowability of - Whether before section 40A was introduced by way of amendment, amount paid towards an unapproved gratuity fund would be eligible for deduction under section 37(1), though not under section 36(1)(v) - Held, yes FACTS On application under section 256(2), the revenue sought to refer the question regarding allowability of the gratuity fund created by the assessee. HELD In catena of cases it has been held that the amount paid towards an unapproved gratuity fund can be deducted under section 37 though not under section 36(1)(v). The Parliament accepted this view and introduced section 40A by way of amendment making the payments made to all gratuity funds ineligible for deductions excepting those payments made to approved gratuity funds. During the relevant period, there was also a Board's circular taking the view that the payments made even to unapproved gratuity fund would be eligible for deduction under section 37. Therefore, no reference was called for on that question. Note : The case decided against the revenue. CASE REVIEW Tata Iron and Steel Co. Ltd. v. D.V. Bapat, ITO [1975] 101 ITR 292 (Bom.); Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53; 39 Comp. Cas. 410 (SC); Madho Mahesh Sugar Mills (P.) Ltd. v. CIT [1973] 92 ITR 503 (All) and Delhi Flour Mills Co. Ltd. v. CIT [1974] 95 ITR 151 (Delhi) followed and relied upon. CASES REFERRED TO Tata Iron and Steel Co. Ltd. v. D.V. Bapat, ITO [1975] 101 ITR 292 (Bom.), Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53/39 Comp Cas 410 (SC), Madho Mahesh Sugar Mills (P.) Ltd. v. CIT [1973] 92 ITR 503 (All.), Delhi Flour Mills Co. Ltd. v. CIT [1974] 95 ITR 151 (Delhi),CIT v. Warner Hindustan Ltd. [1984] 145 ITR 24 (AP). M. Suryanarayana Murthy for the Applicant. M.J. Swamy for the Respondent. JUDGMENT Punnayya, J.-The Commissioner of Income-tax filed a petition under s. 256(2) of the I.T. Act requesting this court to direct the Income-tax Appellate Tribunal to make a reference to this court questions of Nos. 1 to 3, 9 and 10. The learned counsel on both sides submitted before…

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