2013 (3) TMI 169 - AT - Income Tax

Unrecognised gratuity fund - Deduction u/s 37(1) - held that - the Group Gratuity Scheme was not recognised by the Commissioner of Income-tax. This fact is not in dispute. - the amount paid towards an unapproved gratuity fund can be deducted under sec. 37 of the I.T. Act, though not under sec. 36(1)(v). Deduction of interest - investments made and loans advanced to its subsidiary - held that - the assessee used its own non interest bearing funds and there is no cost to the assessee and it is a business decision taken by the assessee to make an investment in subsidiary company and that even if it is resulted in no income to the assessee, the notional interest cannot be disallowed on the reason that the assessee should have used its non interest bearing funds for the purpose of its own business purpose instead using borrowed funds for its business. - Decided in favor of assessee.

Summary

Issues:
1. Allowability of unrecognised gratuity fund under section 37(1) despite non-compliance with section 36(1)(v).
2. Disallowance of proportionate interest on investments and loans to subsidiary.
3. Allowability of depreciation on intangible assets.

Analysis:

Issue 1:
The first issue pertains to the allowability of unrecognised gratuity fund under section 37(1) despite non-compliance with section 36(1)(v). The Tribunal referred to a previous order in the assessee's own case where a similar issue was decided in favor of the assessee. The Tribunal held that even if a payment is made to an unapproved gratuity fund, it can be allowed under section 37 based on a judgment of the jurisdictional High Court. The Tribunal upheld the order of the CIT(A) based on the binding judgment and dismissed the ground taken by the Revenue.

Issue 2:
The second issue involves the disallowance of proportionate interest on investments and loans to a subsidiary. The Tribunal considered a previous order in the assessee's own case where a similar issue was decided in favor of the assessee. It was held that if interest-bearing funds were diverted to a sister concern for non-business purposes, the interest would be disallowed. However, in this case, the Tribunal found that the assessee used its own non-interest bearing funds for the investment in the subsidiary company, and therefore, the interest could not be disallowed. The Tribunal allowed the ground taken by the assessee against the Revenue.

Issue 3:
The final issue concerns the allowability of depreciation on intangible assets. The Tribunal, in line with previous decisions, decided the issue in favor of the assessee rather than referring it to a Special Bench. The Tribunal cited relevant case law and held that the claim for deduction under the relevant section had been admitted in previous assessment years without contravention from the Revenue. Therefore, the Tribunal dismissed this ground raised by the Revenue.

In conclusion, the Tribunal dismissed the appeal of the Revenue based on the decisions and reasoning provided for each issue, thereby upholding the orders of the CIT(A) in favor of the assessee.