TMI Blog1987 (2) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Officer restricted the claim to a sum of Rs. 1,74,603 and disallowed the balance of Rs. 97,551. On appeal, the Appellate Assistant Commissioner confirmed the same. On further appeal, the Income-tax Appellate Tribunal held that once the Commissioner has granted approval to the gratuity fund, it is irrevocable under rule 2(3) of Part C of the Fourth Schedule and the Income-tax Officer is devoid of jurisdiction to sit in judgment over the approval accorded by the Commissioner. It has also held that the entire contribution made by the assessee is in conformity with rule 103. Therefore, it is not in any contravention thereof. At the instance of the Revenue, this reference has been made raising two questions of law, viz. : " (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the Income-tax Officer has no option except to allow as a deduction under section 36(1)(v) of the Income-tax Act, 1961, whatever contribution has been made by the employer-assessee to the gratuity fund maintained by it in accordance with the rules of the said gratuity fund as approved by the Commissioner of Income-tax ? (2) Whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ably it is not in excess of 8 1/3% ; therefore, it is not in transgression of rule 103 of the Rules. He also relied on Gestetner Duplicators (P.) Ltd. v. CIT [1979] 117 ITR 1 (SC). In view of the respective contentions, the first question that arises for consideration is whether the Income-tax Officer has jurisdiction to go behind the approval granted by the Commissioner for the constitution of the gratuity fund. The assessee has got an irrevocable trust deed dated December 16, 1972, executed, under which it constituted a " gratuity fund " and it was approved by the Commissioner of Income-tax by his proceedings dated February 3, 1973, and it is stated that it was corrected on June 20, 1973. This trust was constituted in conformity with the provisions of section 4 of the Payment of Gratuity Act, 1972, which fastens statutory liability on the employer to pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned, for every completed year of service or part thereof in excess of six months. Clause 14 of Schedule A of the trust deed contains rules and regulations of the trust fund, which provide for contribution by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year." (Other clauses and sub-sections are not relevant for the purpose of this case. Hence omitted.) (This provision was inserted by the Finance Act, 1975, with retrospective effect from April 1, 1973). Part C of Schedule IV deals with approved gratuity funds. Rule 1 is the definition rule. Under rule 2, the Commissioner may accord approval to any gratuity fund which, in his opinion, complies with the requirements of rule 3 and may at any time withdraw such approval if, in his opinion, the circumstances of the fund cease to warrant the continuance of the approval. Conditions for approval had been adumbrated in rule 3 which are not disputed. Hence they are not necessary to be extracted. Rule 4 adumbrates filing of application for approval. Rule 5 defines that gratuity is deemed to be salary.Rule 6 enjoins the liability of trustees on cessation of approval. Rule 7 prescribes the liability of the contributions by the employer when it is deemed to be income of the employer. Rule 8 deals with appeal against the order of the Commissioner refusing to accord approval. Rule 9 give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the relevant rules under the 1922 Act, that such recognition had been granted after the true nature of the commission payable by the assessee to its salesmen under their contracts of employment had been brought to the notice of the Commissioner and that the said recognition had continued to remain in operation during the relevant assessment years in question, the last fact in particular clearly implying that the provident fund of the assessee did satisfy all the conditions laid down in r. 4 of Part A of the Fourth Schedule to the Act even during the relevant assessment years. In that situation, we do not think that it was open to the taxing authorities to question the recognition in any of the relevant years on the ground that the assessee's provident fund did not satisfy any particular condition mentioned in r. 4. It would be conducive to judicial discipline and the maintaining of certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies that the provident fund satisfies all the conditions under r. 4 of Part A of the Fourth Schedule to the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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