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3. The assessee has preferred an appeal to the learned Appellate Assistant Commissioner of Income-tax, Central Range, Jaipur, where it was contended that the assessee is maintaining its accounts on the basis of the mercantile system of accounting. It was further contended that the Payment of Gratuity Act, 1972, came into effect from September 16, 1972, and the employers were made liable to pay gratuity to their outgoing employees as per the terms and conditions contained in the said Act. It was further submitted that since the assessee-firm is covered by the Payment of Gratuity Act, 1972, the payment of gratuity was a statutory liability and the appellant was bound to make a provision for this accrued liability. It was further submitted that, even if no provision is made in the books of account for deduction for liability, the same has to be allowed if it is a statutory liability in order to work out the income properly and correctly. The Appellate Assistant Commissioner allowed the claim in respect of the gratuity amount of Rs. 4,000 which was actually paid. Regarding the payment of gratuity of Rs. 21,669, the claim was rejected on the ground that the provisions of Section 37 of the Income-tax Act, 1961, are residuary and since specific provisions have otherwise been made in Section 36(1)(v) and Section 40A(7) of the Act, the claim could not be allowed under Section 37. It was observed that, for the purpose of claiming the deduction under Section 37(1), it has to.be shown that the claim is for an expenditure incurred during the year wholly and exclusively for the purpose of business and, in the present case, since it was only a claim for allowance of the provision for gratuity, the benefit of Section 37(1) cannot be availed of. It was further observed that, in order to get the benefit under Section 40A(7), the conditions laid down therein have to be satisfied and one of the conditions is that the assessee is required to create an approved gratuity fund for the exclusive benefit of its employees under an irrevocable trust and the application for the approval of the fund should have been made before January 1, 1976. The other conditions of Sub-section (7) were also found not satisfied and, therefore, the assessee was held not entitled to the deduction claimed.

(v) any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust."

9. Section 37(1) of the Act provides :

"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), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'."

(1) the provision 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 ;

(2) the assessee creates an approved gratuity fund for the exclusive benefit of his employees under an irrevocable trust, the application for the approval of the fund having been made before the 1st day of January, 1976 ; and (3) a sum equal to at least fifty per cent. of the admissible amount, or where any amount has been utilised out of such provision for the purpose of payment of any gratuity before the creation of the approved gratuity fund, a sum equal to at least fifty per cent. of the admissible amount as reduced by the amount so utilised, is paid by the assessee by way of contribution to the approved gratuity fund before the 1st day of April, 1976, and the balance of the admissible amount or, as the case may be, the balance of the admissible amount as reduced by the amount so utilised, is paid by the assessee by way of such contribution before the 1st day of April, 1977.

13. Clause (iv) of Section 36(1) provided that : "any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be ; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head 'Salaries' or to the contributions or to the number of members of the fund". Sub-clause (v) also provides that : "any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust". The assessee has neither paid any sum by way of contribution towards a recognised provident fund nor towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust and, therefore, a deduction under Section 36(1)(iv) or 36(1)(v) cannot be allowed. For the purpose of computing the profits and gains for business or profession under Section 28, it has been provided under Section 29 that the income shall be computed in accordance with the provisions contained in Sections 30 to 43. The provisions contained in Section 40A(1), (5) and (6) are specific provisions and Section 40A(1) is an overriding section and, therefore, the Income-tax Appellate Tribunal was not justified in coming to the conclusion that the deduction can be claimed if not under Section 37, then under Section 28(i) itself. The Income-tax Appellate Tribunal was also not correct in coming to the conclusion that the provisions contained in Section 40A will not be applicable since no provision has been made in the books of account. This matter was also considered and the argument was negatived in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 (SC) referred to above and the Supreme Court observed that such an interpretation would lead to an absurd result.