2024 (5) TMI 1288 - AT - Income Tax

Disallowance of contribution made to LIC Group Gratuity Scheme u/s. 36(1)(v) - alternatively, assessee has claimed a deduction for this contribution as allowable u/s. 37(1) - HELD THAT - It is a fact on record that assessee had made an application for approval of gratuity fund long back i.e. on 10.12.2002. Assessee had also entered into an agreement with LIC by obtaining Master Policy as stated above which was effective from 01.11.2002. Payment made to LIC towards group gratuity scheme are also not in dispute. Order granting approval to the gratuity fund issued by the office of CIT is dated 04.10.2023 wherein it is stated that the approval takes effect from 03.01.2023. We fail to understand for such a prolonged delay in disposing the application of the assessee without any fault at its end in granting the said approval. During all these years, assessee had been making payments to the LIC towards group gratuity scheme and claimed it as deduction. Its employees have also received payments from LIC for their gratuity as and when the occasion arose. Similar claim has been allowed by Ld. CIT(A) in AY 2011-12 not contested by the Department before the Tribunal. Part C of the 4th Schedule relating to Approved Gratuity Fund, we note that Rule 5 provides for treating gratuity fund to an employee during his lifetime as salary paid to the employee for the purpose of this Act. As undisputed fact that assessee had applied for the approval of the Gratuity Fund in the year 2002 which remained pending by the Department without any justifiable reasons. The approval has been granted by the Ld. Pr. CIT recently vide order dated 04.10.2023 which also states that the approval takes effect from 03.01.2023. The assessee cannot be put to an adverse situation when it has taken all the required steps for the compliance prescribed under the Act and the Rules. LIC has paid gratuity fund to the employees of the assessee in the past. We also note that in the preceding AY 2011-12, ld. CIT(A) has dealt with the same issue in para 4.1 in its order and has allowed the claim of the assessee. Accordingly, applying principles of reasonable construction for giving effect to the purpose and intention of the provisions of the Act as established in the decision of Textool Co. Ltd. ( 2009 (9) TMI 66 - SUPREME COURT ) coupled with Rule 5 of Part C of the 4th Schedule wherein gratuity is treated as salary which is an allowable expenses u/s. 37(1) of the Act, we find it proper to allow the claim of the assessee. Accordingly, grounds taken by the assessee on this issue are allowed.

Summary

Issues Involved:
1. Disallowance of contribution to LIC Group Gratuity Scheme u/s 36(1)(v) of the Income-tax Act, 1961.
2. Alternate claim for deduction u/s 37(1) of the Income-tax Act, 1961.

Summary:

Issue 1: Disallowance of Contribution to LIC Group Gratuity Scheme u/s 36(1)(v)
The assessee challenged the disallowance of Rs. 12,14,720/- contributed to the LIC Group Gratuity Scheme (LICGGS) u/s 36(1)(v) of the Income-tax Act, 1961. The Ld. AO disallowed the claim as the gratuity fund was unapproved by the Commissioner of Income Tax, as reported in the tax audit report. The Ld. CIT(A) upheld this disallowance, noting the absence of approval evidence from the prescribed authority.

Issue 2: Alternate Claim for Deduction u/s 37(1)
The assessee alternatively claimed the contribution as a deduction u/s 37(1) of the Act. The Ld. CIT(A) dismissed this claim, referencing judicial precedents, including the jurisdictional High Court of Calcutta's decision in Brook Bond India Ltd. Vs. JCIT, which stated that expenditures allowable under sections 30 to 36 cannot be claimed under section 37(1).

Tribunal's Findings:
The Tribunal noted that the assessee had applied for the approval of the gratuity fund in 2002, which remained pending without justifiable reasons. The approval was granted recently, effective from 03.01.2023. The Tribunal emphasized that the assessee should not suffer due to the prolonged delay by the Department. It referenced the Supreme Court's decision in CIT Vs. Textool Co. Ltd., which supported a reasonable construction of fiscal statutes to give effect to their purpose and intention. The Tribunal also considered Rule 5 of Part C of the 4th Schedule, treating gratuity as salary, which is an allowable expense u/s 37(1).

Conclusion:
The Tribunal allowed the assessee's appeal, permitting the deduction of the contribution to the LIC Group Gratuity Scheme, applying principles of reasonable construction and considering the prolonged delay in approval by the Department.

Result:
The appeal of the assessee was allowed. The order was pronounced in the open court on 8th January, 2024.