Judgment :- R. JAYASIMHA BABU, J. The short question is as to whether the provision made for gratuity in accordance with s. 40A(7)(b)(ii) of the IT Act, 1961 (hereinafter referred to as 'the Act') is allowable only in the first year relevant to the assessment year in which the liability for gratuity was incurred after the amendment to Gratuity Act came into force on 16th September, 1972. The assessee carries on business in tiles and potteries. Its first accounting year, after amendment of Gratuity Act came into force, was the year ended 30th June, 1973, being the relating previous (sic - year relating) to the asst. yr. 1974-75. In that year no provision was made in its accounts for gratuity payable to its employees on their retirement or termination. In the accounting year ended 30th June, 1974, relating to the asst. yr. 1975-76, the assessee made a provision in its accounts for Rs. 1, 06, 889 towards gratuity. That figure was arrived at by actuarial valuation as on 30th June, 1974, by taking into account the number of employees as on the date, their salaries, and the number of years of service of such employees. The entire amount so determined was paid by the assessee to a fund created specially for the purpose on 9th September, 1975. The assessee claimed that amount as a deduction for the asst. yr 1975-76. That was refused by the ITO, but was allowed by the CIT(A) and the CIT(A)'s order was upheld by a Full Bench of the Tribunal. In this reference at the instance of the Revenue, the question before us is as to whether the provision of Rs. 1, 06, 889 has to be allowed as an admissible deduction under s. 37 or s. 40A(7) of the Act in respect of the asst. yr. 1975-76. Sec. 40A(7)(b)(ii) of the Act which is the relevant provision required to be considered for the purpose of answering this question is set out below, "40A(7)(b) Nothing in cl. (a) shall apply in relation to (i) (ii) any provision made by the assessee for the assessment year commencing on or after the 1st day of April, 1976, to the extent the amount of such provision does not exceed the admissible amount, if the following conditions are fulfilled ........" It is not necessary to set out those conditions. The Expln. (1) is, however, relevant. The Expln. (1) is, however, relevant. That reads as under, "Explanation 1 : For the purpose of sub-cl. (ii) of cl. (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 does not exceed an amount calculated at the rate of eight and one-third per cent of the salary (as defined in cl. (h) of r. 2 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". This provision does not restrict the amount to be provided only to the amount payable in respect of the service rendered by the employees in the immediately preceding year. The provision to be made is not to exceed the admissible amount, the admissible amount being the amount calculated at the rate of 8-1/3 per cent of the salary of each employee entitled to the payment of gratuity for each year of service in respect of which such provision is made. The provision which was made after the introduction of the Payment of Gratuity Act had necessarily to be a provision for all the years of service rendered by the employees upto the year in which the provision was first made, provided such employees were still in the service of the employer and it is only for the subsequent years the prohibition based on actuarial valuation was required to be made for the year relevant to the assessment yearSec. 40A(7)(b)(ii) of the Act is a special provision, designed to protect the employer during the transition period and giving to the employer an opportunity to credit to the fund to be created for the purpose, with at least 50 per cent of the amount payable as gratuity to its employees for all the years of service rendered by them upto that date. The provision is required to be made for the previous year relevant to any assessment year, commencing on or after the 1st day of April, 1973, but before the 1st day of April, 1976. The provision is required to be made for the previous year relevant to any assessment year, commencing on or after the 1st day of April, 1973, but before the 1st day of April, 1976. The assessee as noticed earlier had credited the entire amount and not merely 50 per cent of the fund on 9th September, 1975, a date, which clearly falls within the period mentioned in s. 40A(7)(b)(ii) of the Act. The statutory provision, therefore, enables the assessee to make the provision in any of the assessment years falling between the first day of April, 1973, and the first day of April, 1976, and the provision made in all these years, if the other conditions of that provision are satisfied, would be eligible for being claimed as a deduction in the year in which the provision was made. The question referred to us is, therefore, answered in favour of the assessee and against the Revenue. No costs.