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 facts of the case.

( 5 ) THE assessee preferred a further appeal against the assessment to the Income-tax Appellate Tribunal. It was contended before the Tribunal that the salary paid to the said employee during the previous year was less than Rs. 5,000 per month and was within the permissible limit for salary as laid down in the said Section 40a (5) (c) (i ). The payment of Rs. 61,600 by way of gratuity to the said employee after he retired during the relevant previous year was covered by the limit of Rs. 60,000 also laid down in the said section and, therefore, only Rs. 1,600 ought to have' been disallowed.

( 6 ) THE Tribunal held that under the said Section 40a (5) (c) (i), the said employee came within the definition of a former employee in the relevant assessment year. As a former employee, the terminal benefits by way of gratuity paid to him by the assessee came within the definition of salary in the said section and the total amount in the said year including his salary and gratuity exceeded the limit prescribed for a former employee. The Tribunal dismissed the appeal.

( 7 ) ON an application by the assessee under Section 256 (1) of the I. T. Act, 1961, the Tribunal has referred to this court for its opinion, the following question stated to be a question of law arising out of its order :"whether, on the facts and in the circumstances of the case, the sum of Rs. 23,600 was allowable out of salary and gratuity paid to Sri M. S. Rao, an employee of the assessee, under Section 40a (5) (c) of the Income-tax Act, 1961 ?"

( 8 ) LEARNED advocate for the assessee drew our attention to the relevant sections of the I. T. Act, 1961, the material parts whereof are noted hereafter :" Section 10.--In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included. . . . . . ' (10) (iii) any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependants on his death, to the extent it does not, in either case, exceed one-half month's salary for each year of completed service, calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity is paid, subject to a maximum of thirty thousand rupees or twenty months' salary so calculated, whichever is less :. . . Explanation.--In this clause, "salary" shall have the meaning assigned to it in Clause (h) of Rule 2 of Part A of the Fourth Schedule;' section 17.--For the purposes of Sections 15 and 16 and of this section,-- (1) 'salary' includes- -. . . (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary

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