JUDGMENT
M.B. Shah, J.
1. At the instance of Revenue the Tribunal, Ahmedabad Bench ‘B’, has referred the following two questions for our opinion under s. 256(1) of the IT Act.
“1. Whether, on the facts and in the circumstances of the case, the admissible amount would be the amount not exceeding 8-1/3% of the salary of the employees for each year of his services including the current year and the previous years because the provision made by the assessee in the accounts in respect of gratuity liability was based on actuarial valuation as result of the application of Payment of Gratuity Act, 1972 ?
2. If reply to question No. 1 is in favour of the Revenue, whether the Tribunal ought to have considered whether the CIT could revise the order of the ITO made under s. 155(13) without revising the order made under s. 143(2) r/w s. 144B and whether the order of the CIT revising the order of the ITO was barred by limitation and whether the ITO was obliged to pass the rectificatory order on the fund being approved by the CIT and other condition being fulfilled ?”
2. This reference arises out of the order passed by the Tribunal on 24th June, 1980, directing the CIT to work out on the basis of actuarial valuation the amount of gratuity for deduction as per Expln. 1 to s. 40(7)(b). The aforesaid Expln. 1 reads as under :
“Explanation 1. – For the purpose of sub-clause (ii) of clause (b) of this sub-section, “admissible amount” means the amount of the provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason, to the extent such amount do not exceed an amount calculated at the rate of 8-1/3% of the salary [as defined in clause (h) or r. 2 of Part A of the Fourth Schedule] of each employee entitled to the payment of such gratuity for each year of his service in respect of which such provision is made.”
3. From the aforesaid Explanation it can be said that “admissible amount” (for the purpose of deduction on the head of gratuity) means the amount of the provision made by the assessee for the payment of gratuity to its employees on their retirement or on termination of their employment to the extent that such amount does not exceed an amount calculated at the rate of 8-1/3% of the salary of each employee entitled to the payment of such gratuity for each year of his service in respect of which such provision is made. So this outer limit of 8- 1/3% is for each employee and is in respect of each year of his service for which provision is made by the assessee after satisfying other conditions laid down in sub-s. (7)(b) of s. 40A. Take for illustration that in respect of an employee who is in service for three years, provision for gratuity is made by the employer. In that case the employer has to take into account salary for the relevant three years and on the basis of the Explanation he can make provision to the extent that such amount does not exceed an amount calculated at the rate of 8-1/3% of the salary for each year of his service in respect of which such provision is made. Therefore, the other limit of 8-1/3% would be with regard to each year and for three years that admissible amount can be up to the extent of 25% (8-1/3% x 3). No doubt this would be subject to Expln. 2 and also other conditions provided in s. 40A(7)(b)(ii), such as, provision is to be made in accordance with the actuarial valuation and the ascertainable liability. This question arises mainly because of condition No. (3) which, inter alia, provides that a sum equal to at least 50% of the admissible amount is paid by the assessee by way of contribution to the approved gratuity fund before 1st April, 1976, and the balance is paid before the 1st April, 1977. It covers past liability for which no provision was made previously.
4. Hence, it cannot be said that the direction given by the Tribunal is in any way erroneous.
In the result, question No. 1 is answered in the affirmative, i.e., in favour of the assessee and against the Revenue. In view of our answer to question No. 1, question No. 2 is not required to be answered. Hence, it is left unanswered.
Reference stands disposed of accordingly with no orders as to costs.