COMMISSIONER OF INCOME-TAX VS RAYALASEEMA PASSENGER AND GOODS TRANSPORTS (PVT.) LTD.
1999 P T D 3634
[230 I T R 332]
[Madras High Court (India)]
Before K. A. Thanikkachalam and N. V. Balasubramanian, JJ
COMMISSIONER OF INCOME-TAX
Versus
RAYALASEEMA PASSENGER AND GOODS TRANSPORTS (PVT.) LTD.
Tax Case No.85 of 1984 (Reference No.35 of 1984), decided on 14/11/1996.
Income-tax---
---Business expenditure---Gratuity---Initial contribution to approved gratuity fund ---I.T.O allowing only actuarial liability---Difference between actual, payment and actuarial liability---Also deductible ---Indian Income Tax Ac 1961, S.36.
Payment actually made to an approved gratuity fund is expenditure Incurred for the purpose of business in the year in which the payment was made and allowable under section 37 of the Income Tax Act, 1961. Even after the introduction of the provision of section 40A(7) in the Act in 1973, there is no change in the legal position so far as the actual payment of gratuity is concerned. Hence the actual payment towards gratuity liability is allowable in the year in which it is paid.
For the assessment year 1973-74, the assessee made a claim of Rs.1,93,756 being the initial contribution to an approved gratuity fund, calculated at 15 days' salary for each year of completed service. Such calculation was on the basis of the salary as on the last day of the preceding accounting year for each employee. The Income-tax Officer disallowed the claim of the assessee to the extent of Rs.65,499 on the ground that it was in excess of the actuarially valued amount, which alone was considered by him as allowable. The Tribunal allowed the claim of the assessee. On a reference:
Held, that the sum of Rs.65,499 representing the difference between actual payment made to the approved gratuity fund towards initial contribution and the actuarial liability for the same could be allowed as a deduction while computing the income of the assessee for the year 1973-74.
Triplicane Permanent Fund Ltd. v. CIT (1989) 179 ITR 492 (Mud.) fol.
S. V. Subramanian for the Commissioner.
K. Vaitheeswaran for the Assessee.
JUDGMENT
K. A. THANIKKACHALAM, J.---Pursuant to the direction given by this Court dated November 30, 1981, in T. C. No. 183 of 1981, the Tribunal referred the following question , for the opinion of this Court, under section 256(21 of the Income Tax Act, 1961 (hereinafter referred to as the "Act"):
"Whether, on the facts and in the circumstances of the case and having regard to rule 104 of the Income-tax Rules, 1962, read with section 36(1)(v) of the Income .Tax Act, 1961, the Appellate Tribunal was right in holding that the sum of Rs.65,499 representing the difference between the actual payment made to the approved gratuity fund towards initial contribution and the actuarial liability for the same should be allowed as a eduction while computing the income of the assessee for the assessment year 1973-74?"
The assessee is a company in which the public are not substantially interested. At the time of completion of the original assessment, of the assessee relating to the assessment year 1973-74 the assessee made a clan, of Rs.1,93,756, being the initial contribution to an approved gratuity fund calculated at 15 days salary for each year of completed service. Such calculation was on the: basis of the salary as on the last day of the preceding accounttn2 Sear for each employee. The Income-tax Officer disallowed the claim of the assessee to the extent of Rs.65,499 on the ground that it was In excess of the actuarially valued amount, which alone was considered by him as allowable.
The assessee went on appeal before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner confirmed the disallowance. The assessee took the matter further on appeal to the Appellate Tribunal. The Tribunal, by its order in I.T.A. No. 2417/Mad. of 1974-75. dated February: 18, 1076, set aside the order passed by the Appellate Assistant Commissioner and remitted back the matter to the Income-tax Officer with a direction specifically to consider the allowability of, the provision for payment of gratuity as laid own under section 40A(7) of tit: Act: .
When the matter went back to the Income-tax Officer be still r, that the sum of Rs.65,499 was not allowable under section 40A(7) of the Act. The assessee once again went on appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) held that the provisions of section 40A(7) of the Act would have, no application to the assessee's case, that the claim of the assessee is one which could be allowed under section 36(1)(v) of the Act and rule 104 of the Income-tax Rule which restricts the quantum of the Initial contribution to be made to approved fund, would have application only with reference to the approval be given to the gratuity fund and that once approval is given to the full, there is no need to restrict the claim in terms of rule 104 while allowing tilt same under section 36(1)(v) of the Act. Thereupon, the Department preferred an appeal to the Tribunal.
The Tribunal held that its earlier understanding of the point tit dispute, viz., that the claim of the assessee fell within the ambit of section 40A(7) of the Act was wrong. It further held that the' initial contribution made by the assessee was found by the Commissioner of Income-tax (Appeals) to be within the limits prescribed under rule 104 of the Income-tax Rules and if the assessee bona fide set apart by way of initial contribution to approved gratuity fund, then the claim could be made under section 36(1)(v) of the Act. The Tribunal also went on to hold that in the facts and circumstances of the case the reasonings of the Commissioner or Income-tax (Appeals) are sound. It accordingly dismissed the Department appeal.
Learned senior standing counsel appearing for the Department submitted that the assessee is not entitled to deduction of Rs.65,499 in view of the provisions contained in section 40A(7) of the Act ; according to learned senior standing counsel if the provisions of section 40A(7) of the Act are applied, then the provisions under section 36(1)(v) of the Act cannot be made applicable. It was, therefore, pleaded that the Commissioner of Income-tax (Appeals) was not correct in allowing the sum of Rs.65,499. On the other: hand, learned counsel appearing for the assessee supported the order passed by the Tribunal.
The point for consideration is, whether having regard to rule 104 of the Income-tax Rules, 1962, read with section 36(1)(v) of the Income Tax Act, 1961, the sum of Rs.65,499 representing the difference between actual payment made to the approved gratuity fund towards initial contribution and the actuarial liability for the same can be allowed as a deduction while computing the income of the assessee for the year 1973-74.
A similar question came up for consideration before this Court in Triplicane Permanent Fund Ltd'. v. CIT' (1989) 179 ITR 492, wherein on similar facts, this Court held that payment of gratuity actually made to the approved gratuity fund was the expenditure incurred for the purpose of business in the year in which the payment was made and allowable under section 37 of the Act. Even after the introduction of the provision of section 40A(7) in the Act in 1973, there is no change in the legal position so far as the actual payment of gratuity is concerned. Hence, the actual payment towards approved gratuity ability is allowable in the year in which it is paid. So also the payment on the basis of the actuarial valuation towards approved gratuity fund is allowable as a deduction under section 36(1)(v) of the Act. Accordingly, there is infirmity in the order passed by the Tribunal in confirming the deletion of Rs. 65,491 made by the Commissioner of Income tax (Appeals). Accordingly, we answer the question referred to us in the affirmative and against the Department. No costs.
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