( 1 ) IN this reference under Section 256 (2) of the I. T. Act, 1961, the following questions have been referred to this court:"1. Whether, on the facts and in the circumstances of the case and on a true interpretation of the statutory provisions, the Tribunal was right in upholding the disallowance of the sum of Rs. 2,15,651 (Rupees two lakhs fifteen thousand six hundred and fifty-one only) which was claimed by the assessce as deductible under Section 37 of the Income-tax Act, 1961, on account of provision for payment of gratuity to the employees under the Payment of Gratuity Act, 1972 ? Whether, on the facts and in the circumstances of the case, the provisions of Section 40a (7) of the Income-tax Act, 1961, had no application ?"

( 2 ) THE assessee is a company and the relevant assessment year is 1973-74. Corresponding accounting period ended on 31st December, 1972. Accounts were maintained on mercantile basis. Return of income was filed on the 13th May, 1974, showing a loss of Rs. 1,58,655. The total income, however, was computed at Rs. 88,948 by the ITO in the assessment where a sum of Rs. 2,15,651, being provision for gratuity, was disallowed. The ITO h