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2022 (3) TMI 715 - AT - Income TaxDisallowance of payment made towards LIC employees group gratuity scheme u/s 40A(7) - HELD THAT - In this case, the assessee neither exercised any control or influence over the management of the funds nor did it have any say in the matters relating to payments of the benefits arising or accruing there from which was due to the Members/ Employees. So by relying on the ratio of Textool Ltd 2009 (9) TMI 66 - SUPREME COURT held that, the intention of Section 36(1)(v) of the Act, is that the employer should not have control over the funds of the irrevocable trust created exclusively for the benefit of the employees of the assessee and the Hon ble Allahabad High Court decision in M/s Scooters India Ltd. 2017 (2) TMI 1296 - ALLAHABAD HIGH COURT which decision is on identical issue, we hold that the assessee is entitled for the deduction of the payments made to LIC towards the group gratuity scheme, so we are inclined to allow the claim of the assessee. Accordingly, we set aside the orders of the lower authorities and allow the appeal of the assessee. However, the AO is directed to verify the actual payment made by the assessee towards the gratuity scheme to LIC of India since there is confusion in the order of Ld. CIT(A) on this issue. With the aforesaid observation, the claim of the assessee is allowed.
Issues Involved:
1. Disallowance of contribution to the gratuity fund (LIC Group Gratuity Scheme) under Section 36(1)(v) and Section 40A(7) of the Income Tax Act, 1961. 2. Deductibility of the actual payment made towards the LIC Group Gratuity Scheme under Section 37 of the Income Tax Act, 1961. Detailed Analysis: 1. Disallowance of Contribution to the Gratuity Fund: The primary issue in this case was the disallowance of the contribution made by the assessee, a State Cooperative Bank, to the LIC Group Gratuity Scheme. The Assessing Officer (AO) disallowed ?65,92,737/- under Section 36(1)(v) of the Income Tax Act, 1961, as the assessee failed to produce the Commissioner's approval for the gratuity fund. The AO's decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], who cited Sections 40A(7) and 36(1)(v) of the Act. 2. Deductibility of the Actual Payment Made: The assessee contended that the payment made towards the LIC Group Gratuity Scheme should be allowed as a deduction under Section 37 of the Act. The assessee argued that as per Section 4A(1) of the Gratuity Act, an employer is required to obtain insurance for its gratuity liability from LIC, and thus, the actual payment of ?65,92,737/- should be allowed as an expenditure. The assessee cited the Supreme Court's decision in CIT vs. Textool Company Ltd. (263 CTR 257), which held that the intention of Section 36(1)(v) is to ensure that the employer has no control over the funds of the irrevocable trust created exclusively for the employees' benefit. Tribunal's Findings: The Tribunal noted that the assessee had acquired the Employees' Group Gratuity Scheme from LIC, and the benefits under this scheme were payable directly to the employees or their beneficiaries by LIC. The assessee had no control over the fund managed by LIC. The Tribunal referred to the Supreme Court's decision in CIT vs. Textool Ltd., which allowed the deduction for payments made to LIC under a group gratuity scheme, emphasizing that the employer should not have control over the funds. The Tribunal also considered the Allahabad High Court's decision in M/s Scooters India Ltd. vs. CIT (399 ITR 559), which upheld similar deductions. Conclusion: The Tribunal held that the assessee is entitled to the deduction of payments made to LIC towards the group gratuity scheme, as the assessee had no control over the funds. The Tribunal set aside the orders of the lower authorities and allowed the appeal of the assessee. However, the AO was directed to verify the actual payment made by the assessee towards the gratuity scheme to LIC of India due to discrepancies in the figures mentioned in the CIT(A)'s order. Order: The appeal of the assessee was allowed, and the AO was instructed to verify the actual payment amount. The order was pronounced in the open court on 11th March 2022.
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