TMI Blog2004 (4) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... s), Calicut, against two separate orders of the same date, April 8, 1999, passed by the Income-tax Appellate Tribunal, Cochin Bench in I. T. A. Nos. 128 and 151/Coch/1995 in respect of the assessment year 1991-92 and in I. T. A. Nos. 205/Coch/1995 in respect of the assessment year 1990-91 in the case of the very same assessee who is the respondent in both these cases. The matter arises under the Income-tax Act, 1961 (for short "the Act"). Since common questions of law are involved in both these cases they are disposed of by this common judgment. In I. T. A. No. 7 of 2000 the appellant had formulated three questions of law and this court ordered notice on the following three questions: "1. Whether, on the facts and in the circumstances of the case and also in view of the fact that remittance had not been made before the due date, the assessee is entitled to claim deduction of the sum of Rs. 11,25,965 as gratuity premium? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the provisions of section 43B are not applicable in respect of the claim for the deduction of premium payable towards gratuity to which section 40A(7)(b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SI fund. So far as the claim for deduction of the provision towards the contribution to the approved gratuity fund is concerned, according to the assessee, it is an allowable deduction in view of the provisions of section 40A(7)(b) of the Act. But, according to the Department, the deduction is subject to the provisions of section 43B as per which the deduction is allowable only if the gratuity is paid within the due date for payment provided under the Payment of Gratuity Act or under the Contract Act. Here, it must be noted that both section 40A(7) and section 43B have used the expression "notwithstanding". Therefore, the question to be decided in this case, is as to which of these two provisions has got an overriding effect. If section 40A(7) is subject to section 43B the deduction of the provision towards the contribution to the approved gratuity fund cannot be allowed unless there is actual payment, that too within the due date, provided there is a due date for such payment. On the other hand, if notwithstanding the provisions of section 43B, section 40A(7)(b) has got an overriding effect then, subject to fulfilment of the conditions specified in section 40A(7)(b), the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of the landed properties, in the re-assessment proceedings the Assessing Officer also considered the disallowance in respect of the ESI payments amounting to Rs. 12,712 paid not on due date. According to the Assessing Officer the said amount ought to have been paid on or before April 20, 1989, but was actually paid on May 8, 1989, only. Hence, the said sum was disallowed under section 43B. In the re-computation of total income a sum of Rs. 9,714 being the provision for payment to the gratuity fund originally allowed was also included. The assessee being aggrieved by the assessment orders for the years 1991-92 and 1990-91 filed appeals before the Commissioner of Income-tax (Appeals), Calicut. The said appeals were disposed of by the appellate authority by two separate orders dated November 28,1994, for the assessment year 1991-92 and dated December 23, 1994, for the assessment year 1990-91. The first appellate authority took the view that a sum of Rs. 11,12,965 being the premium payable to the L. I. C. under the group gratuity-cum-life insurance premium for the year ended March 31, 1991, is liable to be deducted. According to the first appellate authority, no due date ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as the disallowance of a sum of Rs. 12,712 under section 43B in respect of the ESI contribution it was noted that the said sum was paid during the relevant previous year on May 8, 1989, and the contribution was claimed as a deduction in the year in which it was paid. The first appellate authority has held that in view of the fact that the payment had been made during the accounting year relevant to the assessment year 1990-91 the question of applying the provisions of section 43B does not arise. The Tribunal considered this issue in paragraph 4 of the appellate order. The Tribunal noted that the Assessing Officer disallowed the claim for the amount payable under the group gratuity scheme for the reason that the amount was not actually remitted before the due date since the payment is seen made only on August 9, 1990, after the end of the previous year. The Tribunal relying on its own order in the case of the assessee for the year 1991-92 upheld the order of the Commissioner of Income-tax (Appeals) and dismissed the Revenue's appeal. The claim for deduction of the ESI contribution of Rs. 12,712 was considered in paragraph 5 of the appellate order. The Tribunal noted that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the assessee in the year of account could be deducted either under section 28 or under section 37 of the Act as observed by the Supreme Court in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585. However, section 40A of the Act provides for expenses or payments not deductible in certain circumstances. Sub-section (7)(a) provides that subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. Clause (b) provides that nothing in clause (a) shall apply in relation to (i) 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 gratuity that has become payable during the previous year. The case of the assessee is that by virtue of clause (b)(i) of sub-section (7) of section 40A the provision for contribution to the approved gratuity fund is an allowable deduction. This requires detailed consideration. The stand of the Revenue, as already noted, is that notwithstanding the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum referred in clause (a) or clause (c) or clause (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return: Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the 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. Explanation 1. -For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or payments not deductible in certain circumstances'. If the marginal note or heading is any indication, and it certainly is a relevant factor to be taken into consideration in construing the ambit of the section, then these payments mentioned therein are not deductible, according to the statute, in certain circumstances. Therefore, the heading of this section is a clear indication that certain payments and expenses which would be otherwise deductible would not be deductible except in certain circumstances indicated in the section. This is abundantly made clear by the non-obstante expression used in sub-section (1) of section 40A. As noted before, the provisions of section 40A shall have effect notwithstanding anything to the contrary contained in any other provision of the Act. Payments of deductions or provision for deduction could have been eligible for deduction or could have been deducted either under section 28 or under section 37 of the Act. But the use of the non obstante expression makes it clear that if there is any legislative base dealing with the provision for gratuity, then the same would be applicable inspite of and notwithstanding any other provision of the Act rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch year'." The Supreme Court thereafter observed thus: "On a plain construction of clause (a) of sub-section (7) of section 40A of the Act, what it means is that whatever is provided for future use by the assessee out of the gross profits of the year of account for payment of gratuity to employees on their retirement or on the termination of their services would not be allowed as deduction in the computation of profits and gains of the year of account. The provision of clause (a) was made subject to clause (b). The embargo is on deductions of amounts provided for future use in the year of account for meeting the ultimate liability to payment of gratuity. Clause (b)(i) excludes from the operation of clause (a) contribution to an approved gratuity fund and amount provided for or set apart for payment of gratuity which would be payable during the year of account. Clause (b)(ii) deals with a situation where the assessee might provide by the spread-over method and provides that such provision would be excluded from the operation of clause (a) provided the three conditions laid down by the sub-clauses are satisfied." Of course the Supreme Court in the said decision did not consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable by the assessee as interest on any term loan from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan. In respect of all those amounts section 43B says that it shall be allowed only in computing the income referred to in section 28 of that previous year in which the sum is actually paid by him. The first proviso deals with payments covered by clauses (a), (c), (d) or clause (e) with respect to which it is said that if the said amounts are actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. The second proviso says that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36. The Explanation refers to the due date which means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause sub-section (1) of section 40A makes it clear that the provisions of the section shall have effect notwithstanding anything to the contrary contained in any other provision of the Act relating to the computation of income under the head "Profits and gains of business or profession". Section 40A(7) says that no deduction is to be allowed, in the computation of the profits and gains of a business or profession, in respect of any provision made for the payment of gratuity to the employees on retirement or on termination of employment. Exception is provided under clause (b)(i) which says that the restriction is not to apply in relation to any provision made for the purpose of payment of a sum by way of contribution towards an approved gratuity fund that has become payable during the previous year or for the purpose of meeting actual liability in respect of payment. Thus, but for the provisions of section 43B enacted, the assessee would have been entitled to deduction of the provision for gratuity by virtue of section 40A(7)(b)(i) of the Act subject to fulfilment of the conditions specified therein. Section 43B introduced subsequent to the introduction of the provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he financial year relevant to the assessment year qualify for deduction in certain cases. But in the case of payments relating to provident fund, etc., stress has been made on payment within the 'due date'. Therefore, it cannot be said that payment made beyond the due date also qualifies for deduction, in view of the prescription in the main provision itself. Had that been the legislative intent, there was no necessity to enact the proviso. The legislature in its wisdom has incorporated the proviso and it cannot be said to be without a purpose. There is nothing repugnant between the main provision and the proviso. They operate in different situations. The view of the Tribunal that payment having been made before the close of the financial year, qualifies for deduction is indefensible". Another Division Bench to which one of us (Sivarajan J.) was a party in the judgment dated October 10, 2002 in I. T. A. No. 92 of 2000 (CIT v. G. T. N. Textiles Ltd. [2004] 269 ITR 282 (Ker)) considered the contention on behalf of the assessee that the aforesaid decision does not apply to the case of payment of the employer's contribution as the Explanation to section 36(i)(va) read with section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a test is but one of the factors which combine to give a fair meaning to the language of the law. That test is that the later enactment must prevail over the earlier one". Another three judges Bench of the Supreme Court in R. S. Raghunath v. State of Karnataka, AIR 1992 SC 81 was concerned with the question whether sub-rule (2) of rule 3 of the Karnataka Civil Services (General Recruitment) Rules, 1977, has overriding effect over the Karnataka General Service (Motor Vehicles Branch) Recruitment Rules, 1976. The observations of the Supreme Court in Justiniano Augusto De Piedade Barreto v. Antonio Vicente Da Fonseca, AIR 1979 SC 984 that: "a law which is essentially general in nature may contain special provisions on certain matters and in respect of these matters it would be classified as a special law. Therefore, unless the special law is abrogated by express repeal or by making provisions which are wholly inconsistent with it, the special law cannot be held to have been abrogated by mere implication" was noted. The court thereafter observed that there should be a clear inconsistency between the two enactments before giving an overriding effect to the non obstante clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons is not an arbitrary principle made by lawyers and judges but springs from the common understanding of men and women that, when the same person gives two directions one covering a large number of matters in general and another to only some of them, his intention is that these latter directions should prevail as regards these while as regards all the rest the earlier direction should have effect". Again the Constitution Bench noted that the Supreme Court in U.P. State Electricity Board v. Hari Shankar Jain [1978] 53 FJR 375; AIR 1979 SC 65, 71 observed as follows: "In passing a special Act, Parliament devotes its entire consideration to a particular subject. When a general Act is subsequently passed, it is logical to presume that Parliament has not repealed or modified the former special Act unless it appears that the special Act again received consideration from Parliament." In determining whether a statute is a special or a general one, it was noted that the Supreme Court in Life Insurance Corporation v. D. J. Bahadur, AIR 1980 SC 2181 observed that focus must be on the principal subject-matter plus the particular perspective and for certain purposes, an Act may be genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y fund can be allowed only in computing the income referred to in section 28 of that previous year in which a sum is actually paid by him. Here, it must be noted that section 43B is a provision of general nature which denies the claim for deduction otherwise than by way of actual payment. As already noted, section 40A(7), clause (b), particularly sub-clause (i) thereof is a special provision in regard to a claim for deduction based on a provision made for payment towards an approved gratuity fund. Going by the principles laid down by the Supreme Court in the decisions discussed above, we are of the view that there is no clear inconsistency between the two provisions, viz., section 40A(7) and section 43B. Section 40A(7) is in negative terms and section 43B is in positive terms, the effect of both these provisions is that in order to claim deduction in respect of payment to a gratuity fund there must be actual payment and that deduction cannot be allowed on the basis of any provision. The only exception to the above rule is with regard to the provision for payment to an approved gratuity fund. It cannot be interpreted that the later provision in section 43B by introducing the non o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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