JUDGMENT 1. - These three income-tax references, in between the same parties, being interconnected and arising out of the one single assessment year 1973-74, are being decided by this common order for the sake of convenience. 2. The questions in all the three references No. 24 of 1986, 8 of 2003 and 1 of 2005 are reproduced here as under : Questions in DB ITR No. 24 of 1986 "(1) Whether the Tribunal was justified in holding that the Appellate Assistant Commissioner was competent to decide the appeal of the assessee against the original order of assessment dated March 11, 1974, even after that order had been set aside for being made afresh by the Commissioner of Income-tax's order under section 263 dated February 19, 1975 ? (2) Whether the Tribunal was justified in holding that the assessee was entitled to deduction under section 40A(7) of the Income-tax Act in respect of the provision for gratuity pertained to earlier years but was provided in the accounts in the year relevant to the assessment year 1973-74." Questions in DB ITR No. 8 of 2003 "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Appellate Assistant Com missioner was competent to decide the appeal of the assessee against the original order of assessment dated March 11, 1974, even though the same has been set aside under section 263 of the Income-tax Act, 1961, for making the fresh assessment ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to deduction under section 40A(7) of the Act in respect of the provisions for granting liability amounting to Rs. 35,40,328 which pertains to earlier years was provided in the accounts in the relevant years ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to deduction under section 40A(7) of the Income-tax Act, 1961, in respect of the full amount of provision for gratuity liability amounting to Rs. 51,18,074 standing in the accounts of the assessee as on the last day of the relevant accounting year out of which an amount of Rs. 51,18,074 standing in the accounts of the assessee as on the last day of the relevant accounting year out of which an amount of Rs. 48,17,760 only had been provided during the relevant accounting year and had been claimed in the return of income, the balance having been provided in the preceding accounting year ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Appellate Assistant Com missioner was right in allowing the deduction of Rs. 38,844 representing the accrued gratuity liability in respect of temporary workers which had neither been provided in the accounts by way of provision nor claimed before the Income-tax Officer ? (5) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Appellate Assistant Commissioner was right in allowing the deduction for Rs. 12,843 rep resenting the gratuity actually paid during the year, which had not been disallowed by the Income-tax Officer in the assessment year at all ?" Questions in DB ITR No. 1 of 2005 "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Appellate Assist ant Commissioner allowing the extra claim of Rs. 1,28,622 on account of gratuity liability in the year under consideration ?" 3. Though by three references, the matter has been referred to this court for answering the questions as aforesaid but, in our view, the question revolves as to the claim made by the assessee about an amount of Rs. 48,19,425 which was the liability for gratuity as the assessee maintains the books of account on the mercantile basis. It made provision in view of the Payment of Gratuity Act, 1972, which came into force with effect from September 15, 1972, and during the course of disposal of the appeals, section 40A(7) was brought in by the Finance Act, 1975, with retrospective effect from April 1, 1973. Out of Rs. 48,19,425 it was claimed by the assessee that Rs. 12,77,432 pertained to the gratuity liability of the previous year relevant to the assessment year 1973-74 while the claim of liability to the extent of Rs. 35,41,993 was a provision made of the past liability as per the Payment of Gratuity Act, 1972, and later on as per section 40A(7) effective from April 1, 1973. 12,77,432 pertained to the gratuity liability of the previous year relevant to the assessment year 1973-74 while the claim of liability to the extent of Rs. 35,41,993 was a provision made of the past liability as per the Payment of Gratuity Act, 1972, and later on as per section 40A(7) effective from April 1, 1973. The Assessing Officer (for short, "the AO"), vide order dated March 11, 1974, allowed an amount of Rs. 12,77,432 but disallowed and added back the amount of Rs. 35,41,993 by holding that since it was a provision only, relatable to the earlier years and thus not allowable. 4. Aggrieved by the said disallowance, an appeal came to be preferred before the Appellate Assistant Commissioner where the assessee challenged the order whereby the said amount of Rs. 35,41,993 was disallowed. The Appellate Assistant Commissioner passed an order on April 26, 1978, which will be adverted a little later. 5. The Commissioner of Income-tax-2, Jaipur, in the meanwhile, by invoking the provisions of section 263 at his command, vide order dated February 19, 1975, after analysing the facts and circumstances, set aside the order of the Assessing Officer passed on March 11, 1974, after holding the same to be erroneous in so far as it was prejudicial to the interests of the Revenue and directed for making a fresh assessment. 6. The assessee aggrieved by the said order filed an appeal before the Tribunal challenging the order under section 263 of the Act. The Tribunal, vide order dated October 16, 1976, in I. T. A. No. 73/JP/75-76 sustained the order passed by the Commissioner under section 263 of the Act. 7. The Assessing Officer initiated proceedings again under section 143(3) in the light of the order of the Commissioner under section 263 dated February 19, 1975, wherein he allowed a deduction of Rs. 11,48,810 only under section 40A(7) by coming to a conclusion that as per the actuarial valuation made by the actuary, the liability of the assessee for the financial year relevant to the assessment year 1973-74 amounted to Rs. 11,48,810 and the assessee having deposited the said amount before March 31, 1977, in the gratuity fund, was entitled to the claim and thus allowed Rs. 11,48,810 but disallowed the amount of Rs. 1,28,622. 8. 11,48,810 and the assessee having deposited the said amount before March 31, 1977, in the gratuity fund, was entitled to the claim and thus allowed Rs. 11,48,810 but disallowed the amount of Rs. 1,28,622. 8. The Appellate Assistant Commissioner before whom an appeal was filed assailing the order passed by the Income-tax Officer on March 11, 1974, wherein gratuity was disallowed to the extent of Rs. 35,41,993 was challenged and by then the amended provision of section 40A(7) having been introduced by the Finance Act, 1975, decided the appeal on April 26, 1978, in the light of the newly inserted section 40A(7) and observed that the claim could be allowed if the following conditions were satisfied : "(a) The liability has accrued during this year. (b) The liability is ascertained through actuarial valuation. (c) A provision is being made, and (d) An irrevocable trust fund has been made for the purpose of payment of gratuity and the same is recognised by the Commissioner of Income-tax, and payment has been made to the said fund as stipulated in the section." 9. He held that all the aforesaid conditions had been fulfilled by the assessee and, accordingly, directed to allow the entire amount of gratuity of Rs. 48,17,760. 10. Both the Revenue as well as the assessee, being aggrieved by the aforesaid order, challenged the matter in appeal before the Tribunal. While the Revenue challenged the deduction/allowance of Rs. 48,17,760, the assessee challenged on some points where the Appellate Assistant Commissioner had not decided the issues on the merits. 11. 48,17,760. 10. Both the Revenue as well as the assessee, being aggrieved by the aforesaid order, challenged the matter in appeal before the Tribunal. While the Revenue challenged the deduction/allowance of Rs. 48,17,760, the assessee challenged on some points where the Appellate Assistant Commissioner had not decided the issues on the merits. 11. The Tribunal, in the order dated September 29, 1979, in I. T. A. No. 325/ JP/78-79 and I. T. A. No. 466/JP/78-79 came to a categorical finding that (1) trust fund has been set up by the assessee ; (2) the said trust fund has been recognised by the Commissioner of Income-tax ; and (3) even the payment as stipulated under the provisions of section 40A(7) has been made of the said fund and the assessee having complied with all the requirements as provided under section 40A(7) of the Act read with the Gratuity Act, 1972, came to the conclusion that liability being statutory, the whole amount towards payment of gratuity which fell due became payable and, therefore, it was proper on the part of the assessee to have made a provision and, accordingly, upheld the order passed by the Appellate Assistant Commissioner where he allowed the claim of Rs. 48,17,760. 12. An order came to be passed by the Commissioner of Income-tax (Appeals) dated March 28, 1980, for this very assessment year 1973-74 where the assessee challenged the disallowance of Rs. 1,28,622 and, according to the assessee, while he was entitled to a claim of Rs. 12,77,432 but the Assessing Officer allowed only an amount of Rs. 11,48,810. By this order, the Commissioner (Appeals) further allowed the balance amount of Rs. 1,28,622. The Revenue carried the matter in further appeal before the Tribunal with reference to the aforesaid amount of Rs. 1,28,622, however, the Tribunal, vide order dated May 21, 1981, dismissed the appeal of the Revenue and upheld the order of the Commissioner (Appeals). 13. Thus, on an application moved by the Revenue, the Tribunal has referred different questions of law to be answered by this court and the controversy as aforesaid revolves solely on the amount of Rs. 48,17,760. 14. Counsel for the Revenue contended that in the appeal preferred by the assessee under section 263 of the Act before the Tribunal, the Tribunal passed an order dated October 16, 1976, observing as under : "We have carefully examined the rival submissions. 48,17,760. 14. Counsel for the Revenue contended that in the appeal preferred by the assessee under section 263 of the Act before the Tribunal, the Tribunal passed an order dated October 16, 1976, observing as under : "We have carefully examined the rival submissions. The grievance of the assessee that the Commissioner of Income-tax was wrong in initiating the proceedings under section 263 against it is, in our opinion, not justified in view of the amendment to the Income-tax Act, 1961, brought about by the Finance Act, 1975, which introduced sub-section (7) of section 40A of the Income-tax Act, 1961, with retrospective effect from April 1, 1973. Due to the aforesaid retro spectivity of the Act, we will have to proceed on the assumption that the law has all along since April 1, 1973, what is been in accordance with the provisions of sub-section (7) of section 40A. It prohibits any allowance for gratuity unless it is by way of contribution to approved gratuity fund, and inasmuch as, such approved gratuity fund did not exist during the accounting period corresponding to the assessment year 1973-74, the allowance of Rs. 12,77,432 made by the Income-tax Officer on account of provision for gratuity was patently wrong and prejudicial to the interests of the Revenue. The Commissioner's order, therefore, directing the Income-tax Officer to reconsider this matter de novo in accordance with law is correct and we refuse to interfere with this part of his order." 15. He contended that when the Tribunal had affirmed the order of the Commissioner under section 263, then, in so far as the amount of Rs. 12,77,432, which was originally allowed by the Assessing Officer, is concerned, should not have been deleted by the Tribunal or by the Commissioner of Income-tax (Appeals) in the subsequent proceedings and further contended that the learned Commissioner in its order under section 263 dated February 19, 1975, had set aside the assessment to make a fresh assessment in accordance with law and keeping in view the observations made. Therefore, it was wide open and available with the Assessing Officer to consider the matter afresh as a whole. He further contended that against the order passed by the Assessing Officer, wherein the amount of Rs. Therefore, it was wide open and available with the Assessing Officer to consider the matter afresh as a whole. He further contended that against the order passed by the Assessing Officer, wherein the amount of Rs. 35,41,993 was disallowed, an appeal came to be filed before the Appellate Assistant Commissioner who, despite of the order of the Tribunal having been passed earlier, by deciding the appeal on April 26, 1978, deleted the entire addition of Rs. 48,17,760 which per se was illegal as the Appellate Assistant Commissioner was ceased of the matter only relating to a disallowance to the extent of Rs. 35,41,993 and not Rs. 48,17,760 which he came to allow. He further contended that in the order dated September 29, 1979, though the Tribunal affirmed the order of the Commissioner of Income-tax (Appeals) who had deleted the entire addition of Rs. 48,17,760 without looking into the facts that the issue before the Commissioner was only to the extent of Rs. 35,41,993 but the Tribunal also went on to consider the entire amount of Rs. 48,17,760. He further contended that the Appellate Assistant Commissioner, while passing order on April 26, 1978, had no occasion to sit over the order of the Commissioner under section 263 a higher authority as also the Tribunal who had passed the order by then sustaining the order under section 263. He further contended that the Appellate Assistant Commissioner, being a subordinate authority to the Commissioner under section 263 of the Act ought to have followed the directions of the Commissioner under section 263. He further contended that the Tribunal not only in the order dated September 29, 1979, allowed the entire amount of Rs. 48,17,760 but also allowed the balance amount which was not even allowable under the provisions of the Gratuity Act, 1972, in order dated May 21, 1981, so also the later order dated January 6, 1986. He further contended that though the gratuity, actually relating/pertaining to a particular assessment year, may be allowable but not the provision made by the assessee for Rs. 35,41,993 was not proper and, therefore, the Assessing Officer had rightly disallowed the same. He further contended that though the gratuity, actually relating/pertaining to a particular assessment year, may be allowable but not the provision made by the assessee for Rs. 35,41,993 was not proper and, therefore, the Assessing Officer had rightly disallowed the same. He further contended that prior to the insertion of section 40A(7), the assessees were entitled to claim deduction of actual gratuity paid/payable under section 37(1) of the Act and the assessee must have been claiming the same over the years and by making a provision of Rs. 35,41,993, it cannot be said that it pertained to the earlier years when the assessee, being a limited company, certainly must have been claiming gratuity on year to year basis under the provisions of section 37(1). However, he conceded that the Revenue is unable to place any material on record as to whether what amounts were being claimed by the assessee over the years and stood allowed under section 37(1) of the Act. 16. He further contended that the claim made by the assessee being unjust, questions of law deserve to be answered in favour of the Revenue and against the assessee. Counsel for the Revenue relied upon the judgment of the Allahabad High Court, in the case of Ramesh Beekay and Co. v. CIT (1994) 72 Taxman 71 (All) . 17. Per contra, learned counsel for the assessee submitted that in the assessment order dated March 11, 1974, which was passed by the Assessing Officer initially, had specifically disallowed an amount of Rs. 35,41,993 and even the Assessing Officer was satisfied about the claim of Rs. 12,77,432 which he allowed. He contended that against the disallowance of Rs. 35,41,993, the assessee preferred an appeal before the Appellate Assistant Commissioner and the same came to be disposed of on April 26, 1978, and by that time section 40A(7) came to be inserted with effect from April 1, 1973. He contended that all the aforesaid conditions stood fulfilled by the assessee. The Appellate Assistant Commissioner as also the Tribunal holding that the aforesaid conditions has been fulfilled, went on to decide the matter on the merits and once the claim has been allowed on the merits, then the submission of counsel for the Revenue about upholding of order under section 263 and other legal submissions, loses its significance. 18. The Appellate Assistant Commissioner as also the Tribunal holding that the aforesaid conditions has been fulfilled, went on to decide the matter on the merits and once the claim has been allowed on the merits, then the submission of counsel for the Revenue about upholding of order under section 263 and other legal submissions, loses its significance. 18. It has been further contended that even the Assessing Officer, in an order passed on August 29, 1977, in pursuance to the order of the Commissioner of Income-tax under section 263, even allowed the gratuity to the extent of Rs. 11,48,810 and when the Assessing Officer was satisfied despite of the order under section 263, then the order was fair and reasonable. Counsel for the assessee further contended that the Tribunal, in all the three orders, has repeatedly held in favour of the assessee after recording finding of fact on the merits. He also relied upon the judgments rendered in the case of Metal Box Co. of India Ltd. v. Their Workmen (1969) 73 ITR 53 (SC) , Shree Sajjan Mills Ltd. v. CIT (1985) 156 ITR 585 (SC) , CIT v. Kelvinator of India Ltd. (1994) 210 ITR 933 (Delhi) and CIT v. Sri Krishna Tiles and Potteries P. Ltd. (2000) 243 ITR 870 (Mad) . 19. Counsel for the assessee further submitted that a circular has been issued by the Central Board of Direct Taxes dated September 21, 1970, bearing Circular No. 47, reported in (1970) 78 ITR (St.) 13 which clarified certain doubts. 20. We have considered the arguments advanced by learned counsel for the parties and perused the impugned orders as also the judgments cited at the Bar. 21. As has been stated herein above, the assessee is a limited company. By virtue of the Gratuity Act of 1972, gratuity was deductible in three cases (i) where it is paid or has become payable during the accounting year ; (ii) where a contribution is made towards an approved gratuity fund or provision is made for such contribution ; and (iii) where a contribution is made towards an unapproved gratuity fund and under a trust. At the time of furnishing of the return of income by the assessee herein, i.e., August 16, 1973, the assessee made a provision of the gratuity in accordance with the Gratuity Act, 1972, and a claim was made to the tune of Rs. 48,19,425. At the time of furnishing of the return of income by the assessee herein, i.e., August 16, 1973, the assessee made a provision of the gratuity in accordance with the Gratuity Act, 1972, and a claim was made to the tune of Rs. 48,19,425. However, the Assessing Officer allowed the claim to the assessee only to the extent of Rs. 12,77,432 which was actually paid /payable by the assessee relating to year under consideration. 22. As pointed out herein above, the Commissioner, while invoking section 263, was of the opinion that the claim allowed by the Assessing Officer to the extent of Rs. 12,77,432 was not proper, by holding that admittedly by that time the assessee did not have the gratuity fund nor did it apply to the Commissioner of Income-tax for approval in terms of section 36(1)(v) of the Income-tax Act and, accordingly, set aside the order of the Assessing Officer framed on August 11, 1974, and directed to make a fresh assessment. It may be pointed out that when the Commissioner of Income-tax passed order under section 263 on February 19, 1975, the provisions of section 40A(7) had not been introduced. This was challenged by the assessee before the Tribunal which also upheld the order under section 263 passed by the Commissioner by order dated October 16, 1976, by observing as referred to supra. 23. The Assessing Officer while passing the order in pursuance of the order of the Commissioner of Income-tax was of the view that the assessee is entitled to a deduction of Rs. 11,48,810 under section 40A(7) the Assessing Officer allowed accordingly. In the meanwhile, the Appellate Assistant Commissioner before whom an appeal was preferred by the assessee against the disallowance of gratuity to the extent of Rs. 35,41,993, came up for consideration and the Appellate Assistant Commissioner came to the conclusion that the assessee is entitled to deduction of the entire amount of Rs. 48,17,760 which was the claim originally made and he decided the issue in view of the newly inserted section 40A(7) of the Income-tax Act. The relevant portion of the order is reproduced hereunder : "Having regarding to the facts mentioned by the learned counsel, I am inclined to agree with him. 48,17,760 which was the claim originally made and he decided the issue in view of the newly inserted section 40A(7) of the Income-tax Act. The relevant portion of the order is reproduced hereunder : "Having regarding to the facts mentioned by the learned counsel, I am inclined to agree with him. In my opinion, all the terms and conditions mentioned for allowing the provision of gratuity as per the provisions of section 40A(7) are fulfilled in the case of the appellant company. Accordingly, the appellant company is entitled to deduction of full amount of Rs. 48,17,760. The Income-tax Officer is hereby directed to allow the relief to the appellant accordingly." 24. The Tribunal by an order dated September 29, 1979, dismissed the Departmental appeal by observing that the assessee was perfectly justified in claiming the deduction to the extent of Rs. 48,17,760. The Tribunal was satisfied that the assessee has complied with all the terms and conditions laid down under section 40A(7) of the Income-tax Act. 25. In the light of the above factual backdrop, the issue boils down to the claim of the assessee to the extent of Rs. 48,17,760. 26. We will advert to question No. 2 in DB Income Tax Reference No. 24 of 1986. 27. While introducing section 40A(7) by the Finance Act, 1975, an explanatory notes/provision came to be issued which reads as under : "28. With a view to mitigating hardship in cases where the pro visions have been made by the assessees in their accounts for the previous years relevant to the assessment years 1973-74 to 1975-76 on the basis of their understanding of the law and the clarification given by the Board in 1970, the new section 40A(7) has made a savings pro vision. Under this provision the prohibition regarding allowance of provisions for gratuity will not apply in relation to such amount of the provision as does not exceed an amount calculated at the rate of 81/2 per cent of the salary as defined in rule 2(h) of Part A of the Fourth Schedule of each employee entitled to the payment of gratuity for each year of service in respect of which the provision is made, if certain conditions are fulfilled. These conditions are as follows : (i) The provision in the accounts for the relevant previous year is made in accordance with an actuarial valuation of the ascertainable liability of the assessee for payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (ii) The assessee sets up a gratuity fund for the exclusive benefit of his employees under an irrevocable trust before January 1, 1976, and files an application to the Commissioner for the approval thereof before that date. (iii) A sum equal to at least 50 per cent of the admissible amount (i.e. an amount calculated at the rate of 81/2 per cent of the salary of each employee entitled to the payment of gratuity for each year of service in respect of which the provision is made) is paid by the asses see by way of contribution to the approved gratuity fund before April 1, 1976, and the balance of the admissible amount is so paid before April 1, 1977. Where any amount has been utilised out of the pro vision made in any previous year for the purpose of the payment of any gratuity before the creation of the approved gratuity fund, the amount to be paid to the approved gratuity fund will be calculated with reference to the admissible amount as reduced by the actual payment made before the date of creation of the approved gratuity fund. 29. For the removal of doubts, it has been specifically provided that where any provision made by the assessee in his accounts for the payment of gratuity to his employees has been allowed as a deduction in any previous year, any sum paid out of such provision by way of contribution to an approved gratuity fund or by way of gratuity to any employee will not be allowed as a deduction in computing the income of the assessee of the later previous year in which the sum is so paid." 28. By this explanatory note, the circular issued by the Board on September 21, 1972, bearing No. 47, stood withdrawn. 29. In the light of the above facts and the explanatory note and on a perusal of the facts on record, it is a finding of fact that a report came to be issued by Sh. By this explanatory note, the circular issued by the Board on September 21, 1972, bearing No. 47, stood withdrawn. 29. In the light of the above facts and the explanatory note and on a perusal of the facts on record, it is a finding of fact that a report came to be issued by Sh. P. K. Ghosh, M. Sc., Fellow of the Institute of the Actuaries, Calcutta, dated May 13, 1972, and subsequent report dated June 1, 1973, in which he opined that "the liability for gratuity in respect of the employees of the said company as on December 31, 1972, was Rs. 51,18,074" and further observed that "the assessee-company is entitled to relief of an amount of Rs. 48,19,425". Thus, the assessee claimed the said amount on actuarial basis. In terms of the provisions of section 40A(7) a trust deed came to be executed on December 24, 1975, which was duly registered with the District Registration Officer, Pali. The assessee also moved an application before the Commissioner of Income-tax for granting approval of the gratuity fund and the Commissioner granted approval on March 30, 1976, but made it effective from December 29, 1975. It is also an admitted fact by the Appellate Assistant Commissioner/Commissioner of Income-tax (Appeals) so also the Tribunal that the assessee deposited the entire amount based on the actuarial valuation in the trust fund on or before March 31, 1977, the extended period. 30. The hon'ble apex court, in the case of Shree Sajjan Mills Ltd. v. CIT (1985) 156 ITR 585 (SC) , had an occasion to consider the newly inserted section 40A(7) of the Income-tax Act and observed as under (601 of 156 ITR) : "On a plain construction of clause (a) of sub-section (7) of section 40A of the Act, what it means is that whatever is provided for future use by the assessee out of the gross profits of the year of account for payment of gratuity to employees on their retirement or on the termination of their services would not be allowed as deduction in the computation of profits and gains of the year of account. The provision of clause (a) was made subject to clause (b). The embargo is on deductions of amounts provided for future use in the year of account for meeting the ultimate liability to payment of gratuity. The provision of clause (a) was made subject to clause (b). The embargo is on deductions of amounts provided for future use in the year of account for meeting the ultimate liability to payment of gratuity. Clause (b)(i) excludes from the operation of clause (a) contribution to an approved gratuity fund and amount provided for or set apart for payment of gratuity which would be payable during the year of account. Clause (b)(ii) deals with a situation where the assessee might provide by the spread-over method and provides that such provision would be excluded from the operation of clause (a) provided the three conditions laid down by the sub-clauses are satisfied. The submission of the assessee is that if no provision is made by the assessee for gratuity, still the same will be deductible and section 40A(7) will have no application, would defeat the very purpose and object of section 40A(7) and render it nugatory. The interpretation as suggested by the assessee would entitle the assessee who made no provision to claim deduction whereas an assessee who made a pro vision would not get deduction unless the requirements laid down in the sub-section are fulfilled. This interpretation, if accepted, will lead to a curious result, and if one may venture to say an absurd result, and even where the assessee has not chosen to adopt the spread-over method and has not provided for the present value of the contingent liability attributable to the year of account by charging it on the profits of the year, the assessee would still be entitled to claim as deduction from the gross profits of the year the said estimated liability which he could have provided for but he has not chosen to do so." 31. In the aforesaid case, the said assessee had not created any provision and the conditions were not challenged and, therefore, the apex court dismissed the appeal of the assessee by observing that if the claim is required to be made under section 40A(7) and the amount is required to be deducted, it must fulfil the conditions laid down under section 40A(7) and the deduction could not be allowed on general principles under any other section of the Act. 32. 32. The Delhi High Court, in the case of CIT v. Kelvinator of India Ltd. (1994) 210 ITR 933 (Delhi) , came to the conclusion that when the Gratuity Act is introduced for the first time, the gratuity payable to the existing employees, who have already rendered some years of service and are still in service, shall have to be considered to make a provision because the gratuity payable depends on the entire length of service of an employee. 33. The hon'ble apex court, in the case of Metal Box Co. of India Ltd. v. Their Workmen (1969) 73 ITR 53 (SC) , held that it is legitimate for a company keeping accounts on the mercantile basis to estimate its liability under a gratuity scheme for its employees on an actuarial valuation and deduct such estimated liability from gross profits in the profit and loss account while working out its net profits. In such a system of mercantile accounting, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of the business ; it is not as if such deduction is permissible only in the case of amount actually spent. Therefore, while working out the net profits, the trader can provide from the gross receipts, his liability to pay a certain sum for every additional year of service of the employees, if such liability is properly ascertainable and it is possible to arrive at a proper discounted present value. 34. The Madras High Court, in the case of CIT v. Sri Krishna Tiles and Potteries P. Ltd. (2000) 243 ITR 870 (Mad) , held that section 40A(7)(b)(ii) of the Act is a special provision. The statutory provision, therefore, enables the assessee to make the provision in any of the assessment years falling between the 1st day of April, 1973, and the 1st 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. 35. The Gujarat High Court, in the case of CIT v. Geskets and Radiators P. Ltd. (1991) 192 ITR 509 (Guj) also came to the conclusion that once the assessee fulfils all the criteria laid down, as aforesaid, then the entire amount is allowable. 36. 35. The Gujarat High Court, in the case of CIT v. Geskets and Radiators P. Ltd. (1991) 192 ITR 509 (Guj) also came to the conclusion that once the assessee fulfils all the criteria laid down, as aforesaid, then the entire amount is allowable. 36. The Allahabad High Court also, in the case of Swadeshi Cotton Mills Co. Ltd. v. ITO (1978) 112 ITR 1038 (All) . The Gujarat High Court, in the case of CIT v. Shreno Ltd. (1994) 210 ITR 289 (Guj) and in the case of CIT v. Shree Digvijay Cement Co. Ltd. (1993) 203 ITR 746 (Guj) and the Calcutta High Court, in the case of CIT v. Remington Rand India Ltd. (1986) 159 ITR 922 (Cal) took the same view. 37. After considering section 40A(7) when the assessee has complied with all the conditions laid down, which have been reproduced herein above, then, in our view, the assessee was certainly entitled to the entire deduction of the gratuity paid/payable or provision made by the assessee. Under the Gratuity Act, 1972, the assessee-company is liable to pay gratuity to its employees who have completed five years of service for the total length of their service as provided under the said Act. The assessee-company would, therefore, become liable to pay gratuity to its employees for their past services rendered in accordance with the provisions of the Payment of Gratuity Act. On coming into force of the Gratuity Act, the assessee-company became liable to provide an amount of Rs. 48,17,760 by way of gratuity to its employees which included current as well as past liability for which provision was made. Therefore, in our view, the liability to pay the said amount of Rs. 48,17,760 is concerned, it arose in the previous year, relevant to the assessment year 1973-74 under reference and since admittedly all the conditions laid down in sub-clause (ii) of clause (b) of section 40A(7) have been fulfilled, in our view, the Tribunal has rightly upheld the said claim. Therefore, in our view, question No. 2 is to be answered in the affirmative and against the Revenue. 38. Therefore, in our view, question No. 2 is to be answered in the affirmative and against the Revenue. 38. In so far as question No. 1 is concerned, in our view, when question No. 2 has been answered in the affirmative in favour of the assessee and against the Revenue on the merits, as the assessee has fulfilled all the criteria laid down in the Gratuity Act, 1972, and section 40A(7) then question No. 1 becomes academic in nature and, therefore, we need not answer the same. 39. In so far as the questions in DB ITR No. 8 of 2003 are concerned, our answer to question No. 2 in DB ITR No. 24 of 1986, referred to supra, also covers questions No. 2 and 3 and, therefore, it is answered in the affirmative in favour o the assessee and against the Revenue. In this reference also, when questions No. 2 and 3 have been answered in the affirmative on the merits, then question No. 1 remains academic. 40. The question of law in DB ITR No. 1 of 2005 is also covered by question No. 2 of DB ITR No. 24 of 1986. We make no order as to costs. *******