2016 (11) TMI 794 - HC - Income Tax

Allowance of deduction u/s 36(1)(v) - allowance of Gratuity Scheme - Held that - Assessee is sponsored by UCO Bank, a Government of India Undertaking and duly complied with the conditions laid down for approval under section 36(1)(v). At least the Assessing Officer when this factum was brought to his notice that the assessee has filed copy of the trust-deed, application to the competent authority on September 4, 2000 then even the said letter could have been forwarded to the concerned Commissioner who ought to have taken recourse of either rejecting or approving the Gratuity Scheme created by the assessee. The assessee cannot suffer for the inaction of the Revenue authorities and the Assessing Officer ought not to have disallowed the claim merely because the Commissioner has not granted approval of the Gratuity Scheme. Once the assessee fulfils the condition laid down for approval having created a trust with the Life Insurance Corporation of India, and it is not the case of the Revenue that the assessee has not deposited money in terms of creation of the trust, therefore, in our view the Tribunal on such facts is well justified in holding that the claim is just, proper and allowable. A just and reasonable claim deserves to be allowed. We find that both the appellate authorities have found it allowable on the facts found and is essentially a finding of fact based on material and evidence on record.

Summary

Issues involved:
- Claim allowed for Gratuity Scheme under section 36(1)(v) of the Income-tax Act, 1961.
- Applicability of section 37(1) of the Act for the claimed expenditure.
- Approval requirement for the Gratuity Fund under section 36(1)(v) and its implications.

Issue 1: Claim allowed for Gratuity Scheme under section 36(1)(v) of the Income-tax Act, 1961:
The appellant claimed a deduction towards payment for a Gratuity Scheme created for its employees under an irrevocable trust. The Assessing Officer disallowed the claim due to lack of formal approval by the competent authority, even though the appellant submitted the scheme for approval. The Commissioner of Income-tax (Appeals) accepted the claim under section 37(1) of the Act, and the Tribunal also found the claim allowable under section 36(1)(v) read with section 40A(9) of the Act. The Revenue contended that approval was mandatory for the claim to be allowed under section 36(1)(v). However, the High Court noted that the appellant had fulfilled the conditions for approval and had submitted the necessary documents to the competent authority. The court found that the claim was just and reasonable, and the appellant should not suffer due to the inaction of the Revenue authorities. The Tribunal's decision to allow the claim was upheld, stating that it was a just and reasonable claim deserving approval based on the evidence and material on record.

Issue 2: Applicability of section 37(1) of the Act for the claimed expenditure:
The appellant also argued that the entire expenditure should be allowed as a business expenditure under section 37(1) of the Act. The Commissioner of Income-tax (Appeals) accepted this alternative plea and deleted the addition. The High Court did not delve deeply into this issue as the claim was found allowable under section 36(1)(v) itself, making the discussion on section 37(1) redundant in this context.

Issue 3: Approval requirement for the Gratuity Fund under section 36(1)(v) and its implications:
The Revenue contended that the approval of the Gratuity Fund was mandatory under section 36(1)(v) for the claim to be allowed. The High Court analyzed the submission and found that the appellant had indeed submitted the necessary information and documents for approval to the competent authority. Despite the Revenue's claim that the letter of submission was not found on record, the court noted that the letter bore the seal of the Joint Commissioner of Income-tax with a receipt date of September 4, 2000. The court emphasized that the Revenue should have taken remedial measures if the letter was missing from the records. Ultimately, the High Court held that the Tribunal's decision to allow the claim was justified based on the facts and evidence presented, and there was no substantial question of law warranting interference.

In conclusion, the High Court dismissed the appeals, upholding the Tribunal's decision to allow the claim for the Gratuity Scheme under section 36(1)(v) of the Income-tax Act, 1961. The court emphasized the importance of fulfilling the conditions for approval and held that a just and reasonable claim should not be denied due to administrative lapses.