1998 (2) TMI 169 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Rs. 4,67,852 u/s 43B for provisions made for gratuity.
2. Applicability of section 43B to contributions towards an approved gratuity fund.

Summary:

Issue 1: Disallowance of Rs. 4,67,852 u/s 43B for provisions made for gratuity
The assessee-company created a gratuity fund on 11-7-1963, recognized by the CIT annually. To cover a shortfall in the fund, the assessee made a provision of Rs. 4,67,852, which was disallowed by the Assessing Officer u/s 43B as it was merely a provision without actual payment. The CIT(Appeals) confirmed this disallowance.

Issue 2: Applicability of section 43B to contributions towards an approved gratuity fund
The Tribunal examined whether section 43B applies to provisions made for contributions to an approved gratuity fund. The Accountant Member argued that as per section 40A(7)(b)(i), provisions for contributions towards an approved gratuity fund should be allowed as a deduction. He emphasized that section 43B should not apply in this case, as it would defeat the purpose of creating an approved gratuity fund.

The Judicial Member, however, contended that section 43B, which starts with a non obstante clause, overrides other provisions, including section 40A(7). He maintained that since the provision was not actually paid during the relevant year, it is hit by section 43B and thus disallowable.

Third Member Decision:
The Third Member was called to resolve the conflict. The Third Member concluded that section 40A(7)(b), being a special provision, prevails over the general provisions of section 43B. The principle "generalia specialibus non derogant" was applied, meaning the specific provision (section 40A(7)(b)) overrides the general provision (section 43B). The Third Member also noted that the legislature did not omit section 40A(7)(b) when inserting section 43B, indicating an intention to continue the concession for approved gratuity funds.

Conclusion:
The Third Member held that the provision of Rs. 4,67,852 made towards the approved gratuity fund should be allowed as a deduction, and section 43B does not apply in this case. The matter was referred back to the regular Bench for decision according to the majority opinion.