2016 (9) TMI 1210 - AT - Income Tax

Payment made to LIC towards Group Gratuity Scheme disallowable U/s 40A(7) - Held that - It is, though, disputed that the application of the assessee for grant of approval, was not traceable in the office of the revenue but the assessee was able to produce the stamped copy of the application and the letter supporting the application dated 13/5/1996 before the Bench. It is also an admitted position that the LIC vide letter dated 16th May, 1996 has requested the revenue to grant approval. In our view, once the third party i.e. LIC is requesting the revenue to grant approval to the fund created for the benefit of the employees in the form of approval of gratuity fund then the revenue cannot dispute that the assessee has not filed application for grant of approval of the gratuity fund. Moreover, in our view, once the revenue is accepting the status of the assessee being approved gratuity fund and has been extended the benefit of the approved gratuity fund after the application was initially filed on 13/5/1996, Now the revenue cannot deny the benefit merely on the basis of non-grant of the approval by the authorities. For the non action of the revenue, the assessee cannot be denied with the benefit of the pendency of the deduction on account of the above contribution made to the gratuity fund. - Decided in favour of assessee.

Summary

Issues:
Disallowance of payment made to LIC towards Group Gratuity Scheme under Section 40A(7) for A.Y. 2008-09, 2009-10, and 2012-13.

Analysis:
The appeals by the assessee challenged the disallowance of payments made towards a Group Gratuity Scheme to LIC under Section 40A(7) for the mentioned assessment years. The assessee had applied for an irrevocable trust named "Man Structural Pvt. Ltd. Employees Group Gratuity Assurance Scheme" in 1996. The Assessing Officer disallowed the contributions as the gratuity fund was not recognized by the CIT. The CIT(A) upheld this disallowance, stating that the fund lacked approval. The assessee argued that they had applied for approval, and LIC had requested approval. The assessee contended that the payment was made for employee benefits and cited the CIT Vs Textool Co. Ltd. judgment. The Revenue argued that the assessee did not pursue approval diligently and that Section 40A(7) conditions were binding. The ITAT found that the assessee had submitted the application and supporting documents, and LIC had requested approval. The ITAT held that once the revenue accepted the fund's status, denial based on non-approval was unjust. Citing Narasus Spinning Mills case and the Textool Co. Ltd. judgment, the ITAT allowed the appeals for all assessment years, emphasizing the purpose of the provision and the benefit to employees.

This judgment highlights the importance of diligently pursuing approvals for statutory compliance while emphasizing the intention behind provisions like Section 40A(7) to ensure employee benefits. The ITAT's decision to allow the appeals was based on the assessee's submission of documents and LIC's request for approval, ensuring that the employee benefit fund's status was recognized despite non-approval. The reference to previous judgments reinforced the principle of reasonable construction to uphold the purpose of statutory provisions.