1982 (7) TMI 205 - AT - Income Tax

Summary

Issues:
1. Disallowance of gratuity claim by the revenue.
2. Interpretation of provisions under section 40A(7)(b)(ii) of the Income-tax Act, 1961.
3. Application of section 36(1)(v) for deduction.
4. Compliance with conditions for gratuity fund creation and payment deadlines.

Analysis:
The appeal involved a dispute over the disallowance of the assessee's claim of Rs. 80,621 representing the liability for gratuity. The assessee, a public limited company engaged in textile manufacturing, created a gratuity fund for employees. The issue centered around the provision made for the year ending 31-3-1975, with the revenue disallowing the amount due to non-compliance with section 40A(7)(b)(ii) requirements.

The assessee contended that the provision was made on an actuarial basis and filed a certificate from a qualified actuary. The assessee argued that sub-clause (i) of section 40A(7)(b) applied to cases with pre-existing gratuity funds, like theirs, created before the retrospective amendment. The assessee maintained that the law allowed provisions towards an approved gratuity fund, irrespective of payment deadlines set by sub-clause (ii).

The revenue, however, insisted that sub-clause (ii) applied universally for assessment years 1973-74 to 1976-77, requiring timely payments. The revenue contended that since the second installment was not paid before 31-3-1977, no allowance should be granted, even for the Rs. 50,000 paid on 31-3-1975.

The Tribunal held that the assessee's payment of Rs. 50,000 towards an approved gratuity fund on 31-3-1975 was allowable under section 36(1)(v). The Tribunal emphasized the distinction between sub-clauses (i) and (ii) of section 40A(7)(b), noting that sub-clause (i) applied to cases with pre-existing funds, entitling the assessee to the full deduction of Rs. 80,621. The Tribunal highlighted the intention behind the provision, allowing mere provisions towards pre-existing funds, and cited a relevant Special Bench decision to support its interpretation.

Ultimately, the Tribunal allowed the appeal, granting the assessee the relief of Rs. 80,621, emphasizing compliance with the law and the presence of a pre-existing gratuity fund as justifying the deduction.