Commissioner of Income-tax Vs. Alembic Chemical Works Co. Ltd. - Court Judgment

Excerpt:
- - 42,55,540 being provision for gratuity payable to the members of the staff under section 40a(7) of the act ?' 2. whether, on the facts and in the circumstances of the case, the appellate tribunal was right in law in holding that the conditions of section 40a(7) of the income-tax act, 1961, were satisfied and, therefore, the assessee was entitled to the claim of the allowance of rs. (ii) being aggrieved by the said order passed by the income-tax officer, the assessee carried the matter in appeal to the appellate assistant commissioner who came to the conclusion that all the conditions stipulated in section 40a(7) of the act were satisfied by the assessee, and the assessee was entitled to deduction of the impugned amount as claimed by it. of the admissible amount, or where any amount has been utilised out of such provision for the purpose of payment of any gratuity before the creation of the approved gratuity fund, a sum equal to at least fifty per cent, of the admissible amount as reduced by the amount so utilised, is paid by the assessee by way of contribution to the approved gratuity fund before april 1, 1976, and the balance of the admissible amount or, as the case may be, the balance of the admissible amount as reduced by the amount so utilised is paid by the assessee by way of such contribution before april 1, 1977.'4. in the present case, we shall have to see as to whether the conditions aforesaid are satisfied. firstly it is not disputed that the commissioner of income-tax, gujarat-iv, ahmedabad, had accorded recognition to the gratuity fund scheme of the assessee retroespectively with effect from december 31, 1975, by his order, dated march 3, 1976. it is thus clear that the assessee has created an approved gratuity fund for the exclusive benefit of its employees under an irrevocable trust and the application for approval of the fund was made by the assessee before january 1, 1976. the second requirement is that as equivalent to at least 50 per cent of the admissible amount or where any amount has been utilised out of such provision for the purpose of payment of any gratuity fund, a sum equal to at least fifty per cent of the admissible amount as reduced by the amount so utilised is paid by assessee by way of contribution to the approved gratuity fund before april 1, 1976. in the case before us, such payment is made on march 27, 1976 and therefore, this condition is also satisfied, it is fus.d. shah, j. 1. at the instance of the revenue, under section 256(1) of income-tax act, 1961, the following questions of law referred for our opinion by the income-tax appellate tribunal : '1. whether, on the facts and in the circumstances of the case, the appellate tribunal was right in law in directing the allowance of an amount of rs. 42,55,540 being provision for gratuity payable to the members of the staff under section 40a(7) of the act ?' '2. whether, on the facts and in the circumstances of the case, the appellate tribunal was right in law in holding that the conditions of section 40a(7) of the income-tax act, 1961, were satisfied and, therefore, the assessee was entitled to the claim of the allowance of rs. 42,55,540 being provision for gratuity payable to the members of the staff ?' 2. in order to answer the aforesaid questions, it is necessary for us to reproduce herein a few relevant facts : (i) the assessee is a public limited company manufacturing and selling medicines and fertilizers. it claimed deduction of an amount of rs. 42,55,540 being the provision for gratuity payable to the staff members under the payment of gratuity act, 1972. the income-tax officer rejected the claim of the assessee firstly on the ground that all the conditions laid down in section 40a(7) of the act have not been fulfilled because the entire amount provided for has not been made over to the trustees of the fund, and secondly because the deduction would be permissible only in regard to the incremental liability of the previous year under consideration, and the liability of the past years would be allowed as deduction only in terms of the provisions of section 36(1)(v) of the act. (ii) being aggrieved by the said order passed by the income-tax officer, the assessee carried the matter in appeal to the appellate assistant commissioner who came to the conclusion that all the conditions stipulated in section 40a(7) of the act were satisfied by the assessee, and the assessee was entitled to deduction of the impugned amount as claimed by it. (iii) on further appeal preferred by the revenue to the tribunal, the tribunal found that the claim for deduction related only to incremental liability of rs. 42,55,540, and that it was not referable to the liability for past years. the tribunal also found that all the other conditions laid down in section 40a(7) of the act have been fulfilled and, therefore, the tribunal dismissed the appeal and confirmed the order passed by the appellate assistant commissioner. 3. section 40a contains a non obstante clause and provides that the provisions of the said section shall apply relating to the computations of income under the head 'profits and gains of business or profession'. section 40a(7), in so far as is material, is reproduced herein : '40a. (7)(a) subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (b) nothing in clause (a) shall apply in relation to -.... (ii) any provision made by the assessee for the previous year relevant to any assessment year commencing on or after april 1, 1973, but before april 1, 1976 to the extent the amount of such provision does not exceed the admissible amount, if the following conditions are fulfilled, namely :- (1) the provision is made in accordance with an actuarial valuation of the ascertainable liability of the assessee for payment of gratuity to his employees on their retirement or on termination of their employment for any reason; (2) the assessee creates an approved gratuity fund for the exclusive benefit of his employees under an irrevocable trust, the application for the approval of the fund having been made before january 1, 1976; and (3) a sum equal to at least fifty per cent. of the admissible amount, or where any amount has been utilised out of such provision for the purpose of payment of any gratuity before the creation of the approved gratuity fund, a sum equal to at least fifty per cent, of the admissible amount as reduced by the amount so utilised, is paid by the assessee by way of contribution to the approved gratuity fund before april 1, 1976, and the balance of the admissible amount or, as the case may be, the balance of the admissible amount as reduced by the amount so utilised is paid by the assessee by way of such contribution before april 1, 1977.' 4. in the present case, we shall have to see as to whether the conditions aforesaid are satisfied. firstly it is not disputed that the commissioner of income-tax, gujarat-iv, ahmedabad, had accorded recognition to the gratuity fund scheme of the assessee retroespectively with effect from december 31, 1975, by his order, dated march 3, 1976. it is thus clear that the assessee has created an approved gratuity fund for the exclusive benefit of its employees under an irrevocable trust and the application for approval of the fund was made by the assessee before january 1, 1976. the second requirement is that as equivalent to at least 50 per cent of the admissible amount or where any amount has been utilised out of such provision for the purpose of payment of any gratuity fund, a sum equal to at least fifty per cent of the admissible amount as reduced by the amount so utilised is paid by assessee by way of contribution to the approved gratuity fund before april 1, 1976. in the case before us, such payment is made on march 27, 1976 and therefore, this condition is also satisfied, it is further stipulated that the balance of the admissible amount or, as the case may be, the balance of the amount as reduced by the amount so utilised is paid by the assessee by way of such contribution before april 1, 1977, and, in the case before us, such payment is made on february 11, 1977. 5. from the aforesaid discussion, it becomes clear that all the conditions stipulated in section 40a(7) were fulfilled by the assessee and the tribunal as well as the appellate assistant commissioner have rightly come to the conclusion that on satisfaction of the condition the assessee was entitled to the allowance of the amount of rs. 42,55,540 being the provision for gratuity payable to the members of the staff under section 40a(7) of the act. 6. in the result, we answer questions nos. 1 and 2 in the affirmative, i.e., in favour of the assessee and against the revenue. no costs.