2011 (9) TMI 750 - HC - Income Tax

Applicability of 40A(7) - assessee being a sick unit - gratuity to those who went for voluntary retirement - Held That - Provision to tune of 32,63,863 was the actual amount payable during the relevant accounting year. - while Section 40A (7) of the Act deals with deduction on the provision made, Section 43B of the Act is with reference to the deduction on actual payment. As far as the present case is concerned, the assessee s case falls under Section 40A(7) of the Act. - Given the fact that Section 40A(7)(b) of the Act contemplates deduction in respect of the provision made, not only for the purpose of contribution towards the approved gratuity fund, but equally so for the purpose of payment of gratuity payable during the year, rightly the Commissioner of Income Tax (Appeals) granted the relief. - Thus 40A(7) was applicable - decided in favor of assessee.

Summary

Issues:
Interpretation of Section 40A(7)(b) of the Income Tax Act for the assessment year 1989-90.

Analysis:
The case involved a dispute regarding the deduction claimed by the assessee for a provision made in the accounts to meet its gratuity liability under a Voluntary Retirement Scheme. The Assessing Officer initially rejected the claim, but the Commissioner of Income Tax (Appeals) allowed the appeal filed by the assessee. The Revenue then appealed before the Income Tax Appellate Tribunal, which upheld the decision of the Commissioner of Income Tax (Appeals). The main contention raised by the Revenue was that the assessee had not provided evidence to show that the amount payable qualified for deduction under Section 40A(7)(b)(i) of the Act.

The Tribunal considered the fact that the assessee, being a sick company, introduced a Voluntary Retirement Scheme where it offered to pay gratuity to employees who opted for voluntary retirement or resigned. The total liability of Rs.32,63,863/- was based on the number of employees participating in the scheme. Section 40A(7)(b) allows deduction not only for contributions to an approved gratuity fund but also for the provision made for payment of gratuity during the year. The Commissioner of Income Tax (Appeals) rightly granted relief based on this provision, which the Tribunal also upheld.

The Court confirmed the Tribunal's decision, emphasizing that Section 40A(7)(b) allows deductions for both contributions to approved gratuity funds and provisions for gratuity payments due in the relevant year. The judgment concluded by confirming the Tribunal's order and allowing the Tax Case Appeal without any costs.