TMI Blog1998 (2) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... provision is made for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, such provision shall be allowed as a deduction. In our opinion, the reference of the CIT(Appeals) to the words "that has become payable during the previous year" with the facts of this case are not in consonance with law. These words only qualify that provision which has been made in respect of the liability that has arisen during the year. They do not qualify the earlier part of sub-clause (1), that is, provision made for the purpose of any contribution towards an approved gratuity fund. If the interpretation of the CIT(Appeals) is accepted, the very purpose of creating a fund and its approval by the CIT would be defeated. Section 40A(7)(a) prohibits the deduction of a provision. But section 40A(7)(b) clearly carves out exception where provision would be allowed as a deduction. Under subclause (1), two types of provisions are envisaged : (a) provision for contribution towards approved gratuity fund, and (b) provision in respect of gratuity liability payable during the year. The provision referred to in part (b) above is in respect of that liability which becomes paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation below clause (va) of sub section (1) of section 36 and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date." 2. From the language of section 43B, which start with the words "Notwithstanding anything contained in any other provisions of this Act" it is clear that the provisions of this section opens with a non obstante clause which means that it overrides the provisions of other sections of the Act - meaning thereby that if any claim of deduction is hit by the provisions of section 43B, then, the fact that the same is allowable under any other provisions of the Act is not relevant for invoking the provisions of section 43B. As far as the present case is concerned it is admitted fact that the assessee has made only a 'provision' for the purpose of contribution towards the approved gratuity fund i.e. the amount has not been actually paid during the previous year relevant to the assessment year 1984-85 which, in my opinion, is hit by the provisions of section 43B(b) and the allowability of the same by virtue of the provisions of section 40A(7)(b), which are of prohibitory/restrictive nature and not of be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (7)(b)(i), it was held by the learned Commissioner that unless the gratuity becomes payable by way of contribution towards the approved gratuity fund, the deduction cannot be allowed. The basis of the acturial valuation is the estimation of the gratuity that will become payable during a particular year. Unless the liability has arisen on the basis of such valuation, the assessee will not create provision by the diversion to gratuity fund. Moreover, it was held that section 43B has an overriding effect over the provisions of section 43A(7) of the Act. Since the assessee also has not paid the said amount, it was held by the learned CIT(Appeals) that the assessee was not entitled to any deduction on this account. Aggrieved by the said order, the assessee took up the matter in appeal before the Tribunal. According to the learned Accountant Member, if any provision is made for the purpose of payment of a sum by way of any contribution towards the approved gratuity fund, such provision shall be allowed as a deduction as per sub-clause (i) of clause (b) of section 40A(7) of the Act. According to him the reference of the CIT(Appeals) to the words "that has become payable during the previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licting provisions, which one will override the other. This aspect has not been properly highlighted by either of the members. The learned Accountant Member gave his finding on the basis that the provisions of section 40A(7) have an overriding effect in view of the non obstante clause. He, however, did not highlight this aspect in the order. Similarly, the learned Judicial Member held that the provisions of section 43B which is a non obstante clause has an overriding effect without discussing how it will have an overriding effect on similar provision of section 40A(7) which is also a non obstante clause. The case was fixed up for hearing on 8-1-1998. Shri M. Gargieya the learned authorised representative appeared for the assessee. According to him the provisions of section 43B will have no application to the case of the assessee in view of the specific provisions of section 40A(7) (b) (i) of the Act. According to him the provision of section 40A(7) have been on the statute w.e.f. 1-4-1973 as inserted by the Finance Act, 1975. It carves out a special concession for an approved gratuity fund without which any provision "whether called as such or by any other name" made by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits or gains are computed under the head 'Profits and gains of business or profession'. Since the assessee has followed mercantile system of accounting, the provision made by the assessee for contribution towards the approved gratuity fund is tantamount to actual payment and deduction is liable to be allowed on the basis of the system of accounting followed by the assessee. Even in any case, the assessee should be given the benefit of doubt in case there are conflicting provisions in the Act in the light of the decision of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. On the other hand Shri BR Meena the learned Sr. D.R. supported the order of the learned Judicial Member. According to him the overriding nature of these two provisions namely section 40A(7) and section 43B has been duly considered by the learned authors Chaturvedi Pithisaria and it was noted that for and assessment year 1984-85 section 43B has an overriding effect over the provisions of section 40A(7) and under the provisions of section 43B a deduction in respect of any sum payable by the assessee as an employer by way of contribution, inter alia, to any gratuity fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so when literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the legislature. Since the legislature in this case tried to tighten the delayed tactics resorted to by the employers in making actual payment to the gratuity fund created by it, the provisions of section 43B squarely applies and, therefore, the view taken by the Hon'ble judicial member is liable to be sustained. I have carefully considered the rival submissions in the light of the material on record. The arguments advanced by both the parties cannot be faulted particularly in regard to the interpretation of taxing statutes as enunciated by the judicial authorities right upto the Apex Court. As pointed out earlier, the limited issue before me is narrowed down to the question whether section 40A(7) which is a non obstante clause will have an overriding effect on the provisions of section 43B of the Act or vice versa. The qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployer to credit an employees's account in the relevant fund under any Act, order or notification issued thereunder or under any standing order, award, contract of service of otherwise. The provision of section 40A(7) and section 43B give rise to a conflict situation. Section 40A(7) provides that no deduction shall be allowed in respect of any provision for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. Section 40A(7)(b) carves out an exception providing that this restriction or disabling section will not apply to provision made 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 gratuity, that has become payable during the relevant previous year. Such an exception carved out in section 40A(7)(c) enabling grant of deduction in respect of provision for payment towards any approved gratuity fund etc. have an overriding effect by virtue of non obstante clause at the beginning of section 40A(1) and will prevail over any contrary provisions contained in any provision of the Act. However, section 43B provides that such deduction will be a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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