Income-tax---

----Business expenditure---Interest---Interest on amount drawn from gratuity fund by employer---Deductible---Indian Income Tax Act, 1961, S.37, Sched. IV---Indian Income-tax Rules, 1962, R.106.

Held, that under the provisions of rule 106 of the Income Tax Rules, 1962, and rule 7 of Part C of the Fourth Schedule to the Income Tax Act, 1961, no money of the gratuity fund would become receivable by the employer under any circumstances and in regard thereto there would not be any lien or charge on the said gratuity fund. Hence, the Tribunal was right in law in holding that the assessee was entitled to deduction in respect of the interest payment made by it on the amount drawn by it from the gratuity fund.

P. K. R. Menon and N. R. K. Nair for the Commissioner.

C. N. Ramachandran Nair and Antony Dominic for the Assessee.

JUDGMENT

V. V. KAMAT, J.---The assessment years are 1978-79 and 1979-80 and covered by these two references. The common question for answer is as follows:

"'Whether, on the facts and circumstances of the case, the Appellate Tribunal is right in law in holding that the assessee is entitled to deduction in respect of the interest payment made by it on the amount drawn by it from the gratuity fund?"

Obviously, it relates to deduction in respect of the interest payment made by the assessee on the amount drawn from the gratuity fund. The question is whether it is income or it is loan.

With regard to the same assessee as also with regard to the same question as to whether payment of interest would be income or repayment of loan, this Court (I.T.R. Nos. 145 of 1984 and 95 1989, dated January 25, 1990--Paripoornan and Jagannadha Raju, JJ.) had an occasion to consider the same question. This Court has considered the question with reference to various aspects, especially the provisions of rule 106 of the Income Tax Rules, 1962, as also rule 7 of Part C of the Fourth Schedule of the same Act. These provisions relate to the fundamental situation that no money of the gratuity fund would become receivable by the employer under any circumstances and in regard thereto there would not be any lien or charge on the said gratuity fund. The other aspect of the situation is dealt with by the provisions of rule 7 referred to above relating to the contributions by the employer and the circumstances under which the said contributions are to be understood as income of the employer. The provision enacts that where such contributions are repaid to the employer, the said amount repaid would have to be understood as the income of the employee of the previous year in which the said repayment has occurred.

Bearing these positions, it is observed with reference to the character of the "repayment by the assessee as to whether it is by way of adjustment against the gratuity paid by the assessee to his employees or otherwise. Referring to the provisions of rule 106 it is observed that what was initially obtained as a loan cannot be understood to be converted to be belonging to any other category and as such if what is sanctioned as loan any part of the repayment in regard thereto could never be understood as treated to be the income of the employer.

A copy of the said judgment is placed before us by learned senior counsel. Going through the judgment, in view of its natural coverage the question can be answered only in the similar way. Accordingly, it is answered in affirmative, against the Revenue and in favour of the assessee.

A copy of the judgment under the seal of this Court and the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal, Cochin Bench, for passing consequential orders.

M.B.A./3344/FC???????????????????????????????????????????????????????????????????????????????? Order accordingly.