DIPAK KUMAR SEN, J.

( 1 ) THIS reference arises out of the income-tax assessment of Hindustan Motors Ltd. , Calcutta, the assessee, in the assessment year 1974-75, the relevant previous year ending on March 31, 1974.

( 2 ) ONE M. S. Rao, an employee of the assessee, retired from service on September 1, 1973. From April 1, 1973, till August 31, 1973, the employee received from the assessee his salary aggregating to Rs. 22,000. On his retirement, he received from the assessee a further Rs. 61,600 on account of his retirement benefits including gratuity.

( 3 ) THE ITO held that under Section 40a (5) (c) (i) of the I. T. Act, 1961, the permissible limit up to which an assessee could claim deduction for payment of amounts to its employees on account of salary or gratuity was Rs. 60,000. He disallowed the deduction of Rs. 22,000 paid to the employee as claimed by the assessee.

( 4 ) ON appeal by the assessee, the assessment was confirmed by the AAC who held that the employee concerned ceased to be an employee of the assessee during the relevant previous year and, therefore, the limit of Rs. 60,000 prescribed in Section 40a (5) (c) (i) in the case of a former employee applied to the f

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