1988 (5) TMI 65 - AT - Income Tax

Summary

Issues:
- Disallowance of contribution towards an approved gratuity fund for the assessment year 1976-77.

Analysis:
The appeal before the Appellate Tribunal ITAT CALCUTTA-D involved the disallowance of a contribution made towards an approved gratuity fund by the assessee for the assessment year 1976-77. The dispute arose from the timing of the approval of the gratuity fund and the subsequent contribution made by the assessee. The Income Tax Officer (ITO) disallowed the deduction claimed by the assessee on the grounds that there was no gratuity fund in existence within the relevant accounting period, thus no valid contribution was made towards an approved gratuity fund. The Commissioner of Income Tax (Appeals) upheld the ITO's decision.

The assessee contended that there was indeed an approved gratuity fund to which the contribution was made, albeit after the end of the previous year. The representative argued that the provisions of sub-clauses (i) and (ii) of clause (b) of sub-section (7) of section 40A of the Income Tax Act should be interpreted in a manner beneficial to the assessee. The representative cited judicial pronouncements and argued that the approved gratuity fund approved by the Commissioner should be considered the same for the purpose of sub-clause (i) of clause (b).

The departmental representative, on the other hand, analyzed the provisions and contended that sub-clause (ii) was a special provision applicable to specific assessment years, while sub-clause (i) applied to the assessment year 1976-77 onwards. The retrospective effect of the relevant provisions was highlighted, and reference was made to section 155(13) and a judgment of the Supreme Court to support the argument against allowing the deduction claimed by the assessee.

The Tribunal, after considering the arguments presented, held that there was no ambiguity in the provisions of section 40A(7) and that sub-clause (i) of clause (b) applied to the instant case. The Tribunal emphasized that a deduction is permissible only when a provision is made by the assessee for the purpose of payment of a sum by way of contribution to an approved gratuity fund during the relevant accounting year. The Tribunal referred to the decision of the Supreme Court to support its conclusion that without an approved gratuity fund in existence during the previous year, any provision made for gratuity could not be considered valid for deduction purposes.

Ultimately, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) rejecting the claim for deduction but partially allowed the appeal on other grounds not relevant to the disallowance of the contribution towards the approved gratuity fund.