Judgment :- THANIKKACHALAM, J. In compliance with the order of this Court dt. 21st October, 1980, the Tribunal has referred the following question for the opinion of this Court under s. 256(2) of the IT Act, 1961. "Whether, on the facts and in the circumstances of the case and having regard to the provisions of s. 40A(7)(b)(ii) of the IT Act, 1961, the Tribunal was right in holding that the provision for gratuity relating to the asst. yr. 1972-73 and the earlier years should be allowed in the asst. yr. 1973-74 in which the provision was made and not in the asst. yr. 1976-77 and 1977-78 when the amounts were actually transferred to the approved gratuity fund ?" * 2. The assessee is a company. For the asst. yr. 1973-74, corresponding to the previous year ended on 31st December, 1972, the assessee has debited a sum of Rs. 2, 31, 580 in the P&L a/c, as provision for payment of gratuity. During the assessment proceedings, the assessee filed a certificate from an actuary to the effect the payment of Gratuity Act, 1972, as on 31st December, 1972, was Rs. 2, 04, 540. However, the ITO was of the view that the liability to pay gratuity was a contingent liability and could not be allowed as a deduction and, therefore, the disallowed the deduction and added the sum of Rs. 2, 31, 580 in computing the total income 3. The matter was taken upto the Tribunal and by its order dt. 14th October, 1976, in ITA No. 622/Mad/1975-76, the Tribunal held that s. 40A(7) of the IT Act, 1961 (hereinafter referred to as the Act), introduced by the Finance Act, 1975, with retrospective effect, applied to the facts of the case and hence, the claim of the assessee had to be considered afresh in the light of that section. On the matter being restored to the file of the AAC, he found that the assessee had applied for approval of the gratuity fund and the CIT had also approved the fund by his order dt. 24th June, 1976. He also found that the assessee had paid a sum of Rs. 1, 26, 000 on 31st March, 1976, and that, therefore, the assessee was entitled to the deduction on satisfying the conditions prescribed under s. 40A(7) of the Act. 24th June, 1976. He also found that the assessee had paid a sum of Rs. 1, 26, 000 on 31st March, 1976, and that, therefore, the assessee was entitled to the deduction on satisfying the conditions prescribed under s. 40A(7) of the Act. He accordingly directed the ITO to verify whether the condition envisaged by that section was satisfied and then to allow deduction. The Revenue appealed to the Tribunal to contend that the liability relating to 1972-73 and earlier years, could be allowed only in the asst. yrs. 1976-77 and 1977-78 when the amounts were transferred to the fund. The Tribunal, however, rejected the contention on the ground that prima facie it was contrary to the provisions of s. 40A(7) of the Act, which was specifically retrospective 4. Before us, learned standing counsel for the Department submitted that since the liability is relatable to the year 1972-73 and earlier years, the said liability could not be allowed in the asst. yrs. 1976-77 and 1977-78, when the amounts were transferred to the Fund. The Tribunal held that the provisions of s. 40A(7)(ii) would apply to the facts of this case. The assessee claimed to have transferred Rs. 1, 26, 000 before 31st March, 1976, and Rs. 1, 25, 000 before 31st March, 1977, as per s. 40A(7)(ii)(3) of the Act. The AAC directed the ITO to verify the said plea of the assessee and if the conditions laid down under s. 40A(7)(b)(3) are satisfied, the AAC directed the ITO to grant deduction of Rs. 2, 04, 540. The provision for gratuity has been made in the previous year, relevant to the asst. yr. 1973-74. There is no dispute that the conditions found in cls. (1) and (2) of s. 40A(7)(b)(ii) of the Act are satisfied in this case. The only other matter that has to be verified is whether the assessee has satisfied the conditions provided in s. 40A(7)(b)(ii)(3) of the Act and for that matter, the matter was remitted to the ITO. Under those circumstances, the Tribunal rightly refused to accept the contention put forward by the Department and in holding that the gratuity liability, which arose in the asst. yr. 1972-73 and earlier years, should be allowed in the asst. yr. 1973-74 in which provision was made and not in the asst. yrs. 1976-77 and 1977-78 when the amounts were actually transferred to the approved gratuity fund. yr. 1972-73 and earlier years, should be allowed in the asst. yr. 1973-74 in which provision was made and not in the asst. yrs. 1976-77 and 1977-78 when the amounts were actually transferred to the approved gratuity fund. Since the order passed by the Tribunal is in accordance with the provisions contained in s. 40A(7)(b)(ii)(3) of the Act, we consider that there is no infirmity in the order passed by the Tribunal. Accordingly, we answer the question referred to us in the affirmative and against the Department. No costs.