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Section 40A(7) of the Income-tax Act, 1961 - Business disallowance - Gratuity - Assessment years 1984-85 to 1986-87 and 1988-89 - Assessee claimed deduction in respect of amount paid to Life Insurance Corporation under Gratuity Insurance Assurance Scheme - Assessing Officer disallowed deduction under section 40A(7) on ground that funds were not paid to a recognised gratuity fund - Whether Assessing Officer was justified in disallowing deduction under section 40A(7) - Held, yes FACTS The assessee claimed deduction in respect of the amount paid to the Life Insurance Corporation of India under Gratuity Insurance Assurance Scheme. The Assessing Officer disallowed the deduction in view of provisions of under section 40A(7) on the ground that the funds were not paid to a recognised gratuity fund. On appeal, the appellate authority allowed the deduction by holding that the contribution made by the assessee was not towards gratuity but as premium paid to the Life Insurance Corporation for insurance of life. On further appeal, the Tribunal upheld the order of the appellate authority. On reference : HELD According to the own showing by the assessee in the audit report given by the auditor, the contribution had been mentioned as gratuity paid to the Life Insurance Corporation. [Para 6] In view of the principles laid down by the Apex Court in the case of Shree Sajjan Mills Ltd. v. CIT[1985] 156 ITR 585/23 Taxman 37, it was clear that the amount paid was nothing else but the gratuity and merely because the scheme had been mentioned as Gratuity Insurance Assurance Scheme, it would not make any difference. The provisions of section 40A(7) would be attracted as the fund had not been recognised by the department. The Tribunal was, therefore, not justified in upholding the deletion of the addition. [Para 8] CASE REVIEW Shree Sajjan Mills Ltd. v. CIT[1985] 156 ITR 585 (SC)followed and relied upon. CASES REFERRED TO Shree Sajjan Mills Ltd. v. CIT[1985] 156 ITR 585/23 Taxman 37 (SC) [Para 5]. R.K. Upadhyaya for the Appellant. ORDER 1. The Income-tax Appellate Tribunal, New Delhi, has referred the following question of law under section 256(1) of the Income-tax Act, 1961,…

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