TMI Blog2015 (4) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... ertinent to mention that the said employees ceased to be employees of the assessee-bank and therefore, the argument of the learned Departmental representative that the employees have not retired cannot be accepted. The assessee-bank and Punjab State Co-op. Bank Ltd., Chandigarh are different persons having separate permanent account number cards and separate legal entity and separately assessed to the Income-tax Department. Moreover, the Punjab State Co-op. Bank Ltd., Chandigarh vide letter dated July 27, 2001 has issued a letter to the manager of the Central Co-operative Banks of Punjab State to remit the said amount, which is available at paper book 15 and 16. In the facts and circumstances of the case, the assessee had not made the provisions for the gratuity to his employees which became payable during the year on their retirement and has been paid during the impugned year and therefore, the Commissioner of Income-tax (Appeals) is not justified in confirming the action of the Assessing Officer on this account. We reverse the order of the learned Commissioner of Income-tax (Appeals) and direct the Assessing Officer to allow the claim of the assessee with respect to gratuity paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was based on wrong misinterpretation of section 40A(7)(a) and 40A(7)(b) of the Income-tax Act and without consid ering the provisions of sections 36(1)(v) and 37 of the Income-tax Act when the same became payable during the year on termination of services of employees from appellant-society and even it was remitted to new entity, i.e., Punjab State Co-op. Bank Ltd., Chandigarh as per service rules and consent of such employees and should have been taken as paid as per section 43(2) of the Income-tax Act. 2. That upholding addition of ₹ 1,61,572 made on account of allegation of less interest charged by the Deputy Commissioner of Income-tax Cir.II, Bhatinda is also not justified and in accordance with law and also resulted double taxation of same income when the assessee has duly shown what was charged and recoverable during the year and whatever difference found recoverable and traced later on during audit has duly been shown in income of ensuing year as per same practice followed by the assessee-society from year to year. So addition made is also liable for deletion. 3. That the appeal is within the time and copy of order of the Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Senior Manager 3 Manager Non-common cadre 4 Assistant Manager 5 Accountant 6 Clerk 7 Daftri 8 Driver 9 Peon-cum-chowkidar 10 Sweeper 3.1. The officials at S. Nos. 1 to 3 (called common cadre employees) are the Employees of Punjab State Co-op. Bank Ltd., Chandigarh, and their services are being governed under the Punjab State Co-operative Financing Institution Service (Common Cadre) Rules, 1970-71. These employees are positioned either at Punjab State Co-operative Bank Chandigarh or its Divisional Officers in the State of Punjab or at different District Central Coop. Banks then salary and cost of payment of gratuity admissible to these employees for the period of their stay at that District Central Co-op. Banks are being met and borne by these District Central Co-op. Bank. Gratuity due and payable during the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gave their consent regarding joining with other employer i.e., Punjab State Co-operative Bank Ltd., Chandigarh and demanded gratuity due to them on their such cessation to employment with Fazilka Central Co-operative Bank, Abohar may kindly be remitted to our new employer, i.e., Punjab State Co-operative Bank Ltd., Chandigarh. Such gratuity payment due to them amounting to ₹ 22,03,792 on leaving the job from our bank was also demanded by Punjab State Co-operative Bank Ltd. Chandigarh vide letter No.10903 dated December 29, 2006 as per service rules as details given above. As such the assessee-bank was required to pay the gratuity due to them under the service rules and cannot withhold such dues and same was remitted and paid to the new employer as per calculations and details and same are detailed as under : Amount (Rs.) Particulars 22,03,792 Remitted and paid vide demand draft No. 849487 dated March 31, 2007 to Punjab State Co-operative Bank Ltd. Similarly the assessee bank was also required to pay the salary as well as gratuity liability of such employees as per service r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith calculation and explanation. As such the order passed by the Assessing Officer is not sustainable under amended section and not proper. 3.7. Learned counsel for the assessee has drawn our attention to section 43(2) of the Act which defines term paid consideration according to which gratuity actually paid or incurred is allowable. Section 43(2) of the Income-tax Act, defines as under : Paid means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head 'Profits and gains of business or profession' . 3.8. Learned counsel further made a reference to section 37 about the expenditure which also includes gratuity and which is as under : Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure of personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business of profession' . So it is an actually paid g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85] 152 ITR 520 (Mad) ; (iv) CIT v. Salem Magnesite Pvt. Ltd. [1991] 189 ITR 154 (Bom) ; (v) CIT v. Bitoni Lamps Ltd. [2005] 277 ITR 396 (P H) ; and Decisions of various other courts of law which are part of the paper book. All the paper judgments are placed on records to support the arguments made hereinabove. 4. The learned Departmental representative on the other hand, relied upon the orders of both authorities below. 5. We have heard the rival contentions and perused the facts of the case. For the better appreciation and to decide the present issue, for the sake of convenience, we reproduce section 40A(7) as under : Section 40A(7)(a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (b) Nothing in clause (a) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertinent to mention that the employees themselves demanded the gratuity and the letters of demand are on record at paper book 26 to 34 where it has been mentioned by each employee that he ceased to be employee of the assessee-bank with effect from the date mentioned in the letter and therefore, the assessee-bank was requested that the amount of gratuity of the service rendered by that employee in the assessee-bank be paid to the Punjab State Co-op. Bank Ltd., Chandigarh as per letter No.10983 dated December 29, 2006. The letter No. 10983 dated December 29, 2006, is a letter of the Punjab State Co-op. Bank Ltd., Chandigarh on record, where it has been asked by that bank to remit the amount of gratuity and leave salary contribution of non-cadre period in respect of non common cadre employees who were promoted as managers in the common cadre available at paper book 25. 5.3. It is also pertinent to mention that the said employees ceased to be employees of the assessee-bank and therefore, the argument of the learned Departmental representative that the employees have not retired cannot be accepted. The assessee-bank and Punjab State Co-op. Bank Ltd., Chandigarh are different persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees who did not join R. Ltd. were directly paid gratuity. The assessee was obliged to pay gratuity to those employees who had joined R.Ltd. Instead of those employees getting the gratuity amount directly, got that amount paid to R.Ltd. who put that amount in trust in a separate account for the exclusive use of the transferred employees and payable to them after their services in R.Ltd. terminated including the gratuity due on account of service rendered in R.Ltd. as per the scheme relating to gratuity of that company. Payment of amount of gratuity to R. Ltd. was made as per the scheme of the assessee and it was not an ex gratia or some isolated payment. It was never disputed and in fact, no question raised if the services of the employees of the assessee were not terminated and that being the position, the obligation of the assessee to make payment of gratuity to its employees was and obligation in praesenti. Payment of gratuity amount to R. Ltd. was with the con sent of the employees transferred there. Thus, payment of gratuity awarded by the assessee to R. Ltd. in the circumstances of the case was an expenditure wholly laid or expended for the purpose of the business of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njustified as the assessee has shown and accounted what it has charged from the customers and recoverable from them for this year on day-to-day basis and if any difference of interest recoverable is traced later on or pointed out by the auditors due to miscalculation and oversight that has been shown in ensuing year and the same practice and method is being followed by the assessee from year to year since the start of bank and being accepted by the Department also on continuity concept and evidence regarding the same is reproduced hereunder : Assessment year Year ending Discrepancies Particulars 2004-05 31-3-2004 Net interest less charged by ₹ 3,24,872 Duly accepted by the Department 2005-06 31-3-2005 Net interest less charged by ₹ 1,68,933 Duly accepted by the Department 2006-07 31-3-2006 Net interest less charged by ₹ 4,13,915 Duly accepted by the Department 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an Income-tax Officer proceeds to include a particular income in the assessment, he should ask himself, inter alia, two ques tions namely : (i) what is the system of accountancy adopted by the assessee, and (ii) if it is the mercantile system, subject to the deeming provisions, when has the right to receive accrued ? If he comes to the conclusion that such a right accrued or arose to the assessee in a particular accounting year, he should include the said income in the assessment of the succeeding assessment year. No power is conferred on the Income-tax Officer under the Act to relate back an income that accrued or arose in a subsequent year to another earlier year, on the ground that income arose out of an earlier transaction. Nor is the question of reopening of accounts relevant in the matter of ascertaining when a particular income accrued or arose. The meaning of the work 'accrue' or 'arise' in section 4(1)(b)(i) of the Indian Income- tax Act, 1922 cannot be extended so as to take in amounts received in a later year though the receipt was not on the basis of a right accrued in the earlier year. Such amounts are in law received by the assessee only in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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