TMI Blog2018 (1) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... 6(1)(v), as is the admitted position on the facts of the case, section 37(1) can obviously not have any application. - Decided in favor of assessee. - I.T.A. No.1390/Ahd/2014 - - - Dated:- 15-11-2017 - Pramod Kumar AM And Mahavir Prasad JM For The Appellant : Mehul K Patel For The Respondent : V K Singh ORDER Per Pramod Kumar AM : 1. This appeal challenges order dated 14th February 2014, passed by the learned CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2010-11, on the following grounds: - 1 . The learned AO and the learned CIT ( Appeals ) have erred in disallowing contribution to gratuity fund of Rs . 5,63,235 /- holding that the gratuity fund was not approved on the date of contribution, not appreciating that the approval was in process and hence, the contribution was allowable as a deduction . 2 . Without prejudice to the above and if it is held that the same is not allowable u / s 36 ( 1 )( v ) , it is respectfully submitted and claimed that the same be allowed u / s 37 of the Act as business expenditure . 2. The issue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax has granted approval to the gratuity fund, vide order dated 11th February 2014, but the approval is granted with effect from 7th April 2010, which, as is evident from the facts set out above, effective from the date on which application was made for approval of the trust rather than the date on which the trust was created. The approval of the gratuity fund set up by the assessee appellant is thus no longer an issue; the short issue for our consideration, in our considered view, is that when an approval is granted effective subsequent to the date of setting up of a gratuity fund, whether the earlier contributions made to such a trust can be allowed as a deduction, or whether, as we put it to the parties during the course of hearing, it is at all open to the Commissioner to restrict the approval, on the facts of this case, as effective from a date later than the date on which the trust was actually set up and commenced its operations. Learned counsel has an alternative plea as well. He submits that since the expenditure incurred is admittedly in the course of, and in legitimate furtherance of its legitimate business interests, and is not expressed forbidden by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the fund shall be a fund established under an irrevocable trust in connection with a trade or undertaking carried on in India, and not less than ninety per cent of the employees shall be employed in India ; ( b ) the fund shall have for its sole purpose the provision of a gratuity to employees in the trade or undertaking on their retirement at or after a specified age or on their becoming incapacitated prior to such retirement or on termination of their employment after a minimum period of service specified in the rules of the fund or to the widows, children or dependants of such employees on their death; ( c ) the employer in the trade or undertaking shall be a contributor to the fund ; and ( d ) all benefits granted by the fund shall be payable only in India . 6. There is no dispute that these conditions are satisfied in the present case, and that is the reason as to why the approval is granted by the Commissioner. The dispute is confined to the question as to the date from which the approval must be deemed to have taken effect. No doubt, rule 2(2) provides that the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o do something, he has a corresponding duty to exercise such powers when circumstances so justify or warrant. There is no dispute that the Commissioner has the powers to decide the date from which the approval is to take effect. As a corollary to this power, the Commissioner has the duty to do exercise this power as the circumstances so justify and warrant, by making eligible for deduction of contribution to a gratuity fund set up in accordance with the requirements of Part C of Third Schedule to the Income Tax Act, and to prevent unjustified hardship to the assessee. As observed by a coordinate bench in the case of Sabnis Ashok Anant Vs ACIT [(2008) 117 TTJ 96 (Pune)], An Assessing Officer, as indeed any other authority in the Income Tax Act, cannot turn to the assessee and say that although he has authority to do something for the good of the assessee, it is not necessary that he must exercise that authority . Once a statutory authority has the power to do something for a public good and when circumstances so justify and warrant, he has to essentially exercise such powers in accordance with the scheme of law. The statutory powers are exercised on the basis of sound concept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, it is mainly this eventuality which justifies the date of approval being later than the date on which the fund is created. In a situation in which the terms and conditions of the fund, established under the irrevocable trust, are the same as the terms and conditions on the basis of which such a fund was set up, there cannot be, in our humble understanding, any justification for the effective date of approval being a date later than the date on which the said fund was set up. In any case, no such justification has been set out in the order nor made out by the learned Departmental Representative. 8. As for the contention that it is the date of application which is the only relevant date for giving effect to the approval, such a contention is only fit to be noted and rejected. Inherently, an approval for a fund which is already set up is in the nature of post facto approval and it relates back to the date on which it is set up in accordance with the scheme of the law. This legal position is accepted under the scheme of the Income Tax Act itself adequate demonstrates it. It is in this context that we may take note of the first proviso to Section 12AA(2) which is as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction being allowed. As a matter of fact, even going by the approval itself, the date from which the approval is effective is prior to the date of approval. The argument of the learned Departmental Representative is this contrary to the stand taken in the approval itself. 10. For the detailed reasons set out above, we are of the considered view that notwithstanding the effective date of approval set out by the Commissioner in his approval order, the approval granted to the employees gratuity trust must be treated as effective from 1st January 2010, and, on that basis, the contribution made by the assessee to the said trust must be held to be admissible as deduction under section 36(1)(v). The assessee thus succeeds in the appeal. As we have decided the appeal on this short issue, the other issues raised by the assessee are wholly academic and do not call for our adjudication. We may, however, add that the alternate plea of the learned counsel which was so emphatically argued before us, is anyway only fit to be noted and rejected since, as clearly provided by Section 37(1) itself, only such expenses can be considered for deduction under section 37(1) which are not expend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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