Judgment :- MISHRA, J. The matter had remained pending for more than a decade to answer the questions : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the provision for gratuity to employees amounting to Rs. 8, 80, 848 should be allowed as a deduction even though it related to the earlier years ? "and" whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to the deduction of Rs. 1, 74, 314 being the provision for incremental liability to pay gratuity to the employees in the assessment year 1972-73 ?" * and in the meanwhile, the law has suffered a change by the introduction of section 40A of the Income-tax Act, 1961 (hereinafter referred to as "the Act") and the judgments of the courts have settled the law and it is the position till the provisions of section 40A(7) were inserted in the Act (1) Payments of gratuity actually made to the employee on his retirement or termination of his services were expenditure incurred for the purpose of business in the year in which the payments were made and allowed under section 37 of the Act ; (2) Provision made for payment of gratuity which would become due and payable in the previous year was allowed as an expenditure of the previous year on accrued basis when the mercantile system was followed by the assessee ; (3) Provision made by setting aside an advance sum every year to meet the contingent liability for gratuity as and when it accrued by way of provision for gratuity or by way of reserve or fund for gratuity was not allowed as an expenditure of the year in which such sum was set apart ; (4) Contribution made to an approved gratuity fund in the previous year was allowed as deduction under section 36(1)(v) ;(5) Provision made in the profit and loss account for the estimated present value of the contingent liability properly ascertained and discounted on an accrued basis as falling on the assessee in the year of account could be deductible either under section 28 or section 37 of the Act. (vide Shree Sajjan Mills Ltd. v. CIT 1986 AIR(SC) 484, 1986 (9) ECR 276, 1985 (156) ITR 585, 1985 (2) Scale 737 , 1985 (4) SCC 590 , 1985 (S3) SCR 593, 1985 (49) CTR 193, 1985 (23) TAXMAN 37, 1986 (2) TLR 48, 1985 (2) SCALE 737 , 1986 SCC(Tax) 82, 1985 (49) CTR(SC) 193 (SC)). The facts of the case in this behalf are summarised in the statement of the case by the Tribunal in these words The assessee is a public limited company doing business in the manufacture of bonded abrasives. It had, inter alia, claimed an amount of Rs. 1, 18, 581 as provision for gratuity in respect of the assessment year 1971-72 and Rs. 1, 74, 314 in respect of the accounting year ending August 31, 1971, relevant for the assessment year 1972-73. The amount claimed for the assessment year 1971-72 was total liability towards gratuity in the sense that it included not only the incremental liability in respect of the additional services rendered by the employees during the accounting year, but also the initial liability. The Income-tax Officer considered that the mercantile system of accounting adopted by the assessee justified only the allowance of incremental liability. He disallowed Rs. 8, 80, 848 pertaining to the initial liability, i.e., the liability in respect of the services rendered in the earlier years, and held that such initial liability was not admissible either under section 36 or section 37 of the Act. For 1972-73, he disallowed even the incremental liability worked out at Rs. 1, 74, 314 on the ground that an irrevocable trust within the meaning of section 36(1)(v) of the Act had not been created apparently because the gratuity fund had not by then received the approval from the Commissioner in accordance with the Rules contained in Part C of the Fourth Schedule read with section 2(5) of the Act. The Appellate Assistant Commissioner found that the assessee had created a trust by executing a document on August 26, 1970, between the assessee-company and the trustees of the fund. He also found that the deed provided for an effective arrangement for the deduction of tax at the time of payment and for payment by the assessee and receipt by the trust of the amounts represented by the provision. He also found that the deed provided for an effective arrangement for the deduction of tax at the time of payment and for payment by the assessee and receipt by the trust of the amounts represented by the provision. He had specifically found in his order for the assessment year 1971-72 that the assessee had created a trust and handed over the money to the trust and held that the amount was clearly admissible as a deduction under section 37 of the Act. The Tribunal has held, the gratuity fund had not obtained the approval of the Commissioner of Income-tax. All the same, the initial and incremental liability for 1972-73 were admissibleLearned counsel for the Revenue has placed reliance upon a decision of this court in CIT v. Carborundum Universal Ltd. 1977 (110) ITR 621 and contended that as in the case of a contribution to a recognised provident fund or approved superannuation fund falling under section 36(1)(iv), so in the case of gratuity under section 36(1)(v), the contribution for payment of gratuity to the employees, which is not made in an approved and irrevocable fund created for the said purpose, is neither deductible under section 37 nor under section 28 of the Act. He has relied particularly on the observations in the said judgment "Section 37, with the marginal note 'General', states in sub-section (1) thereof 'Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) . . . . . He has relied particularly on the observations in the said judgment "Section 37, with the marginal note 'General', states in sub-section (1) thereof 'Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) . . . . . .' and held 'Simply as a matter of construction we reach the conclusion that once a particular item of expenditure is of the nature specifically described in any of the statutory provisions contained in sections 30 to 43A of the Act, the said expenditure cannot be deducted under section 28 simply because it does not become eligible for deduction under the specific provision'." He has also relied upon the observations in the judgment of this court in CIT v. Andhra Prabha P. Ltd. 1980 (123) ITR 760, 1980 (14) CTR 269, 1980 (4) TAXMAN 314 , 1980 (14) CTR(Mad) 269 wherein, however, section 40A(7) of the Act is considered particularly, and contended that in cases of assessment for any year previous to the introduction by the Finance Act, 1975, with effect from April 1, 1973, of section 40A(7) this court has affirmed the law as in the case of Carborundum Universal Ltd. 1977 (110) ITR 621 (Mad). This court had occasion to consider the effect of the statement of law in Carborundum Universal Ltd.'s case 1977 (110) ITR 621 (Mad) in CIT v. Diamond Finance 1995 (212) ITR 472, 1995 (126) CTR 25, 1995 (78) TAXMAN 115 (Mad). Learned counsel for the Revenue, in the said case, had contended that sub-section (3) of section 37 had made a specific provision as to the deduction of the expenditure on advertisement, etc., and it cannot be made subject to another provision, that is, section 40A. Rejecting the said argument, the court observed: "It is difficult for the Revenue to contend before us that what is provided under sub-section (3) of section 37 is not a provision relating to the computation of income under the head 'Profits and gains of business or profession'. Rejecting the said argument, the court observed: "It is difficult for the Revenue to contend before us that what is provided under sub-section (3) of section 37 is not a provision relating to the computation of income under the head 'Profits and gains of business or profession'. Thus, assuming there are inhibitions as prescribed as contended by learned counsel for the Revenue under sub-section (3) of section 37 of the Act, they are removed by the specific legislative command, such provisions relating to the computation of income shall have no effect if they are in conflict with anything contained in section 40A. The law stated in the judgment of this court (see 1977 (110) ITR 621) is not the one which has taken notice of section 40A and accordingly it is not an authority laying down, as contended by learned counsel for the Revenue, that expenditure on advertisement which is covered by sub-section (3) of section 37 of the Act shall suffer the inhibition under the Rules and the assessee shall not be permitted to seek the protection under the proviso aforementioned." Undeterred, however, learned counsel for the Revenue has pursued his argument and drawn our attention to a judgment of the Supreme Court in Shree Sajjan Mills Ltd. v. CIT 1986 AIR(SC) 484, 1986 (9) ECR 276, 1985 (156) ITR 585, 1985 (2) Scale 737 , 1985 (4) SCC 590 , 1985 (S3) SCR 593, 1985 (49) CTR 193, 1985 (23) TAXMAN 37, 1986 (2) TLR 48, 1985 (2) SCALE 737 , 1986 SCC(Tax) 82, 1985 (49) CTR(SC) 193 which has summarised the law which applied until the provisions of section 40A(7) were inserted in the Act, as we have noticed earlier, being the law and contended that as held by the Supreme Court that for gratuity to be deductible under the Act, it must fulfil the conditions laid down in section 40A(7), so in the case before the introduction of this provision if it is not covered by section 36(1)(v), it is not permissible under section 37 of the Act. In Metal Box Co. In Metal Box Co. of India Ltd. v. Their Workmen 1969 (39) CC 410, 1969 (1) SCR 750 , 1969 AIR(SC) 612, 1969 (1) LLJ 785 , 1969 (35) FJR 181, 1969 LIC 995, 1969 (18) FLR 336, 1969 (73) ITR 53, 7392 ITR(Page) 503, the Supreme Court has held that contingent liabilities discounted and valued as necessary would be taken into account as trading expenses if these were sufficiently certain to be capable of being valued. An estimated liability under a gratuity scheme even if it amounted to contingent liability, if properly ascertainable and its present value was fairly discounted was deductible from the gross profits while preparing the profit and loss account. In Shree Sajjan Mills' case 1986 AIR(SC) 484, 1986 (9) ECR 276, 1985 (156) ITR 585, 1985 (2) Scale 737 , 1985 (4) SCC 590 , 1985 (S3) SCR 593, 1985 (49) CTR 193, 1985 (23) TAXMAN 37, 1986 (2) TLR 48, 1985 (2) SCALE 737 , 1986 SCC(Tax) 82, 1985 (49) CTR(SC) 193, the Supreme Court has observed: "Payment of gratuity as commonly understood is the payment made to the employee by the employer on his retirement or termination of his service for any reason. It is made voluntarily by the employer as a regular practice or pressure of trade or business either under an agreement with the employees or on the understanding of the trade and after the enactment of the Payment of Gratuity Act, 1972, which came into force on September 16, 1972, as a statutory liability under the said Act. It is made voluntarily by the employer as a regular practice or pressure of trade or business either under an agreement with the employees or on the understanding of the trade and after the enactment of the Payment of Gratuity Act, 1972, which came into force on September 16, 1972, as a statutory liability under the said Act. Although payment of gratuity is made on retirement or termination of service, it was not for the service rendered during the year in which the payment is made but it is made in consideration of the entire length of service and its ascertainment and computation depend upon several factors." It is not necessary for us to dilate any further as, in the case of CIT v. Andhra Prabha P. Ltd. 1986 (158) ITR 416, 1986 (54) CTR 313, 1986 (54) CTR(SC) 313, the Supreme Court considered a case similar to the one in hand in which the assessee had adopted the mercantile system of accounting and the liability for payment of gratuity had arisen in the case of working journalists under section 5 of the Working Journalists (Conditions of Service and Miscellaneous Provisions) Act, 1955, and in the case of non-working journalists under an agreement dated March 13, 1968, and held: "The case relates to the assessment year 1969-70 and is, therefore, governed by the statute as it existed before the insertion of sub-section (7) in section 40A of the Income-tax Act, 1961. The legal position has been analysed by this court in its recent decision in Shree Sajjan Mills Ltd. v. CIT 1986 AIR(SC) 484, 1986 (9) ECR 276, 1985 (156) ITR 585, 1985 (2) Scale 737 , 1985 (4) SCC 590 , 1985 (S3) SCR 593, 1985 (49) CTR 193, 1985 (23) TAXMAN 37, 1986 (2) TLR 48, 1985 (2) SCALE 737 , 1986 SCC(Tax) 82, 1985 (49) CTR(SC) 193 and it is clear that the answer returned by the High Court to the question referred to it is in accord with that position." In the said case, the Supreme Court answered the question in the affirmative, in favour of the assessee and against the RevenueThe Tribunal, in the instant case, has answered the question against the Revenue and in favour of the assessee. The facts disclose that the assessee has created a trust and has made contributions to the trust for the benefit of the employees under an agreement. The facts disclose that the assessee has created a trust and has made contributions to the trust for the benefit of the employees under an agreement. The Tribunal has correctly applied the law and made no mistake. The reference is accordingly answered. No costs.