1998 (8) TMI 608 - AT - Income Tax

Summary

Issues:
- Disallowance of gratuity payment deduction under section 43B of the Income Tax Act.

Analysis:
1. The appellant's appeal was against the disallowance of a gratuity payment deduction amounting to Rs. 22,153 for the assessment year 1992-93. The appellant claimed that the gratuity payable to an employee who joined another company within the same group was transferred to the new employer for future payment. The Assessing Officer disallowed the deduction under section 43B of the IT Act as there was no evidence of payment within the stipulated time.

2. The CIT(A) upheld the disallowance, noting that the amount was still shown as outstanding in the balance sheet and the employee's acknowledgment did not specify when the transfer was made. The appellant argued that the liability was transferred to the new employer on the day of cessation of employment, constituting payment as per section 43(2) of the Act. Citing the case of W.T. Suren & Co. Ltd. v. CIT, the appellant contended that payment to the new employer was equivalent to payment to the employee directly.

3. The appellant relied on various legal precedents, including decisions by the Supreme Court and High Courts, to support their argument that the transfer of gratuity liability to the new employer with the consent of the employee should be considered as payment under section 43(2). The Tribunal agreed with this interpretation, emphasizing that the gratuity amount was payable on termination of employment and was made over to the new employer with the employee's approval. Therefore, the appellant was entitled to claim the deduction of Rs. 22,153 under section 40A(7).

4. Consequently, the Tribunal allowed the appeal, overturning the CIT(A)'s decision and holding that the gratuity payment should be considered as paid within the meaning of the relevant provisions of the Income Tax Act. The appellant's contention regarding the transfer of liability to the new employer being equivalent to payment was accepted, leading to the allowance of the deduction claimed.