Section 40A(7)(b) overrides Section 43B for provisions made to approved gratuity funds.

The Revenue appealed under Section 260A of the Income-tax Act, 1961, against the Tribunal’s order dated 30 December 2013 in ITA No. 949/Mds/2013.

The dispute concerned the validity of proceedings under Section 263 and the deductibility, for assessment year 2005–06, of a provision for gratuity in light of Sections 40A(7) and 43B.

The substantial questions of law were admitted on 8 June 2015.

Both parties accepted that the issues were covered by the Madras High Court’s decision in M/s. Sanmar Speciality Chemicals Limited v. Assistant Commissioner of Income-Tax, TCA No. 493 of 2013, decided on 24 March 2025.

Whether proceedings under Section 263 were unavailable because the issue concerning the gratuity deduction was debatable

Whether Section 40A(7), particularly its provision concerning contributions to an approved gratuity fund, takes precedence over Section 43B

Whether the gratuity provision was disallowable because it had not been paid before the due date for filing the return for assessment year 2005–06

Section 40A(1) gives Section 40A overriding effect in computing business income, while Section 40A(7)(a) generally disallows deductions for provisions for gratuity, subject to clause (b), which permits the specified provision for contribution to an approved gratuity fund or payment of gratuity that has become payable during the previous year.

Section 43B generally allows specified deductions only upon actual payment.

Applying the principles that a specific provision ordinarily prevails over a general one, and that provisions should be reconciled where possible, the Court relied on Sanmar Speciality Chemicals to hold that Section 40A(7)(b), specific to an approved gratuity fund, takes precedence over Section 43B’s more general provision.

The Court also treated the Section 263 question as covered by that decision.

The Court noted that both parties accepted that the issues were governed by Sanmar Speciality Chemicals.

That decision had concluded that Sections 40A(7)(b) and 43B could be reconciled: the former specifically addresses qualifying provisions for an approved gratuity fund, whereas the latter applies generally to specified deductions subject to actual payment.

On that basis, the Court accepted the assessee’s position on the gratuity deduction and the related challenge to the Section 263 proceedings, without undertaking a separate analysis of the facts.

The Court dismissed the Revenue’s appeal. No costs were awarded.