2025 (3) TMI 1285 - HC - Income Tax

Allowable deduction u/s 40A(7)(b) for provision made towards the approved gratuity fund with LIC - HELD THAT - The analogy drawn by the assessee is qua the observation of the Supreme Court in the context of Section 40A(9) by that assessee pointing out that that provision Section 40A(9) has been held to override the provisions of Section 43B by operation of the non-obstante clause in Section 40A(1). So too in the present case we agree that the provisions of Section 40A(7) would override Section 43B if the assessee in question satisfies the stipulations under clauses (a) and (b) thereof. Whether the contributions made by the assessee are to an approved gratuity fund or otherwise as that would be critical to determine eligibility in terms of Section 40A(7)(b)? - For the present year which falls in between the previous and subsequent years where the stand of the assessee on this issue has been accepted the assessee places on record the following particulars to establish that the payments have been made to the LIC gratuity fund duly approved by the Commissioner of Income-Tax Tamil Nadu I Chennai. A copy of original trust deed has been produced. That deed is between the Chemicals Plastics India Limited and the Trustees of the aforesaid Company and provides for setting up of a group gratuity fund for various benefits to the employees. The fund is deemed to have taken effect from 1.1.1978. Vide proceedings of CIT Tamilnadu 2 Madras 34 dated 23.05.1979 recognition and approval have been accorded to the employees gratuity fund. Variations were made to the aforesaid deed of trust with the previous approval of the CIT to such variations obtained under C.No.1252-II(4)/78/dated 15.3.1988. One of the variations is to sub-clause(a) of the preamble to trust deed dated 1.3.1978 extending the scope of applicability of trust deed to the employees of any of its subsidiaries/associates also. With the above variation having been approved to take effect on 15.04.1988 the contributions of the assessee company also stand covered under the ambit of the approved gratuity fund. The aforesaid variation has been carried forward throughout deed of trust dated 01.03.1978 thus bringing the subsidiaries/associates of Chemicals and Plastics Limited also within the cover of approved gratuity fund dated 1.03.1978 with effect from 15.04.1988. Documents have been supplied to the learned Senior Standing Counsel and sufficient time and opportunity afforded to him to obtain instructions from the AO. Learned Counsel fairly does not dispute the position that the Assessee has been granted the benefit of the claim under examination now for the previous and subsequent years. The documentation produced now is identical to the documentation on the basis of which the claim had been accepted by the Department for the other years. - Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the Tribunal was correct in holding that the provision of Rs.31,24,172 made by the assessee towards the approved gratuity fund with LIC is not an allowable deduction under Section 40A(7)(b) of the Income-Tax Act, 1961.

2. Whether the Tribunal was right in holding that notwithstanding the allowability of the provision for gratuity under Section 40A(7), the actual payment to the Trust must be effected before the deduction can be allowed.

3. Whether the Tribunal was correct in holding that the provisions of Section 43B(b) override the provisions of Section 40A(7)(b).

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Allowability of Deduction under Section 40A(7)(b)

Relevant Legal Framework and Precedents: Section 40A(7)(b) allows deductions for provisions made for payment towards an approved gratuity fund. The appellant argued that this provision should override Section 43B, which mandates deductions based on actual payment.

Court's Interpretation and Reasoning: The Court emphasized that Section 40A(7)(b) specifically addresses contributions to an approved gratuity fund, distinguishing it from the broader stipulations of Section 43B. The Court considered the specific nature of Section 40A(7)(b) as crucial in determining its precedence over Section 43B.

Key Evidence and Findings: The Court noted that the assessee had consistently contributed to an approved gratuity fund, as evidenced by documentation and past assessments where similar claims were accepted.

Application of Law to Facts: The Court found that the assessee's contributions were indeed made to an approved gratuity fund, satisfying the requirements of Section 40A(7)(b).

Treatment of Competing Arguments: The Court acknowledged the Department's reliance on Section 43B but concluded that the specific provisions of Section 40A(7)(b) took precedence due to their specific nature regarding approved gratuity funds.

Conclusions: The Court concluded that the provision for gratuity is allowable under Section 40A(7)(b).

Issue 2: Requirement of Actual Payment

Relevant Legal Framework and Precedents: Section 43B requires certain deductions to be allowed only upon actual payment. The Tribunal had held that actual payment was necessary for the deduction under Section 40A(7).

Court's Interpretation and Reasoning: The Court determined that Section 40A(7)(b) specifically allows deductions for provisions made towards an approved gratuity fund, without necessitating actual payment within the same fiscal year.

Key Evidence and Findings: The Court noted that the assessee had made payments to the LIC gratuity fund, which was approved by the Commissioner of Income-Tax.

Application of Law to Facts: The Court applied the specific provision of Section 40A(7)(b), which does not require actual payment within the fiscal year for deductions related to approved gratuity funds.

Treatment of Competing Arguments: The Court rejected the Department's argument that actual payment was necessary, emphasizing the specific allowance under Section 40A(7)(b).

Conclusions: The Court held that actual payment is not a prerequisite for deductions under Section 40A(7)(b) when contributions are made to an approved gratuity fund.

Issue 3: Override of Section 40A(7)(b) by Section 43B

Relevant Legal Framework and Precedents: Both Sections 40A and 43B contain non obstante clauses, leading to potential conflicts in their application.

Court's Interpretation and Reasoning: The Court analyzed the non obstante clauses and determined that the specific nature of Section 40A(7)(b) regarding approved gratuity funds should prevail over the general provisions of Section 43B.

Key Evidence and Findings: The Court referenced precedents where specific provisions were given precedence over general ones, supporting the application of Section 40A(7)(b) in this context.

Application of Law to Facts: The Court found no conflict between the two sections as Section 43B did not specifically address approved gratuity funds, unlike Section 40A(7)(b).

Treatment of Competing Arguments: The Court dismissed the argument that Section 43B should override Section 40A(7)(b), emphasizing the latter's specific focus on approved gratuity funds.

Conclusions: The Court concluded that Section 40A(7)(b) is not overridden by Section 43B concerning approved gratuity funds.

SIGNIFICANT HOLDINGS

The Court held that Section 40A(7)(b) allows for deductions related to provisions made towards an approved gratuity fund without the necessity of actual payment within the fiscal year. The specific nature of Section 40A(7)(b) takes precedence over the general provisions of Section 43B. The Court emphasized the principle that specific provisions should prevail over general ones in cases of statutory interpretation involving conflicting provisions.

The Court concluded that the substantial questions of law were resolved in favor of the assessee, allowing the appeal and setting aside the Tribunal's decision.