1984 (4) TMI 88 - AT - Income Tax

Summary

Issues:
- Eligibility for deduction of entire initial contribution to approved gratuity fund
- Interpretation of provisions under section 36(1)(v) and section 40A(7)
- Application of Delhi High Court decision in CIT v. Delhi Cloth and General Mills Co. Ltd.
- Liability for payment to the fund as provision under section 40A(7)(b)(i)

Analysis:
The judgment revolves around the issue of the assessee's eligibility for deduction of the entire initial contribution of Rs. 4,14,000 payable to the trustees of the approved gratuity fund. The assessee claimed a deduction for gratuity contribution of Rs. 4,85,000, comprising an initial contribution of Rs. 4,14,000 and an annual contribution of Rs. 71,000. The Commissioner had permitted the initial contribution to be paid in five annual instalments. The Income Tax Officer (ITO) allowed deduction for only one-fifth of the initial contribution and the annual contribution, rejecting the claim for the balance.

The Tribunal considered the provisions of section 36(1)(v) and section 40A(7) of the Income-tax Act, 1961. Under section 36(1)(v), an assessee is eligible for deduction for contributions towards an approved gratuity fund created for the exclusive benefits of employees. The term 'paid' is crucial, defined under section 43(2) to mean actually paid or incurred. The Tribunal referred to the Delhi High Court decision in CIT v. Delhi Cloth and General Mills Co. Ltd., emphasizing that liability created under a trust deed, with the company following the mercantile system of accounting, amounts to payment or expenditure.

The Tribunal also addressed the issue of provision under section 40A(7)(b)(i), stating that irrespective of actual provision, the liability to make payment to the fund constitutes a provision. Citing the Tribunal Special Bench decision in Soft Beverages (P.) Ltd. v. Second ITO, the Tribunal explained that a provision denotes something provided for, covering all liabilities remaining undischarged. The Tribunal concluded that the assessee was eligible for deduction under section 36(1)(v) based on the constructive payment made, or alternatively, under section 40A(7)(b)(i) due to the accrued liability for the balance amount of initial contribution.

In light of the above analysis, the Tribunal allowed the appeal, emphasizing that the Calcutta High Court decision relied upon by the revenue was not applicable to the present case as it did not consider the provisions of section 36(1)(v). The Tribunal's decision rested on the interpretation of relevant sections and precedents, ultimately ruling in favor of the assessee's eligibility for the deduction of the initial contribution to the approved gratuity fund.