1990 (10) TMI 126 - AT - Income Tax

Summary

Issues:
1. Disallowance of excess amount paid towards a recognised gratuity fund.
2. Interpretation of Rule 103 of the Income-tax Rules regarding contribution limits.
3. Admissibility of contributions to a recognised gratuity fund on actuarial basis.

Analysis:
1. The appeal by the revenue challenged the disallowance of Rs. 90,536 made by the Income-tax Officer, contending that it exceeded the amount payable as per Rule 103 of the Income-tax Rules towards a recognised gratuity fund. The Income-tax Officer restricted the contribution to 8 1/3% of the salary, resulting in the disallowance of the excess amount.

2. The Commissioner of Income-tax (Appeals) found that the assessee's contributions to the recognised gratuity fund on an actuarial basis were admissible under the IT Act. The CIT(A) determined that only the incremental liability had been provided and was not restricted to 8 1/3% of the current year's salary, leading to the deletion of the disallowance. The revenue disputed this decision.

3. The Senior Departmental Representative argued that the contribution to the gratuity fund should be limited to 8 1/3% of the salary as per Rule 103 of the IT Rules. In contrast, the Chartered Accountant for the assessee contended that the actuarial method of valuation for gratuity calculations exempts it from the restrictions of Rule 103, as it is not an ordinary annual contribution based on a scientific basis.

4. After considering the submissions and evidence, the Tribunal upheld the representative's contention for the assessee. It clarified that Rule 103 restricts only ordinary annual contributions to 8 1/3% of the salary, not actuarial-based gratuity calculations. The Tribunal reviewed the actuarial liabilities and provided amounts, concluding that the assessee's claimed sum was justified and aligned with the actuarial valuation method.

5. The Tribunal dismissed the appeal, affirming the CIT(A)'s decision to allow the assessee's contribution to the recognised gratuity fund based on actuarial calculations. The judgment emphasized the distinction between ordinary annual contributions and actuarial-based gratuity calculations, supporting the assessee's approach in this case.