THE BUNDI CENTRAL CO-OPERATIVE BANK LTD.,KOTA vs. ASSISTANT COMMISSIONER OF INCOME TAX, SAWAI MADHOPUR

Briefly stated, the facts of the case are that the assessee is a Co-operative Bank and has claimed deduction for gratuity payment amounting to Rs. 57,58,849/- u/s 43B of the Act towards gratuity fund maintained with the LIC. The Assessing Officer observed that the gratuity fund was not approved by the Commissioner and a show cause was issued to the assessee. In response, the assessee submitted that it has applied for the Commissioner’s approval way back in the year 2003 and submitted all the documents at that point in time. In support, the copy of the trust deed, LIC policy and other documents were submitted to the Assessing Officer with a request that the latter can verify the same with the office of the ld. CIT. However, the reply so filed was not found not acceptable by the Assessing officer as the fund was not approved by the ld. CIT and the claim of the assessee was disallowed.

Being aggrieved, the assessee carried the matter in appeal before the ld. CIT and reiterated the submissions made before the Assessing Officer. Further, reliance was placed on the Hon’ble Supreme Court decision in case of CIT Coimbatore vs. M/s Textool Co. Ltd. 263 CTR 257 (SC). However, the ld. CIT confirmed the disallowance so made by the Assessing Officer and the relevant findings reads as under:-

Against the said finding, the assessee is in appeal before us. During the course of hearing, the ld. AR submitted that the assessee co-operative bank has setup the trust fund for ensuring the gratuity payment to its employees and has tied up with LIC. The Bank has applied for the approval of the Gratuity Trust to the ld. CIT, Kota on 03.02.2003. However, there was no communication from the ld. CIT Office though certain queries were raised by the then ITO, Bundi which were resolved and then the ITO, Bundi informed the assessee that no further action lies at assessee’s end. It was accordingly submitted that all along these years, the assessee carried this belief and understanding that the fund has been duly approved by the CIT and the same has also been allowed and accepted in past assessment proceedings except when the issue was raised by the Assessing officer for the impugned assessment year.

It was further submitted that the assessee thereafter filed a reminder letter to the ld. CIT on 10.08.2018 and in response, the approval has since been granted by the Pr. CIT, Kota dated 29.10.2018 approving the employee’s Group Gratuity Scheme w.e.f 01.10.2018. It was submitted that it was not a fresh application but the reminder to the application filed earlier on 03.02.2003 and through a letter dated 01.11.2018, the ld. CIT was requested to approve the scheme w.e.f 01.01.2003 as against on 01.10.2018 as the bank has satisfied the conditions laid down in Rule 3 of Part C of the Fourth schedule to the Income Tax Act.

Further, our reference was drawn to the Co-ordinate Bench decision in case of ACIT vs. Jhalawar Kendriya Sahakari Bank (in & 1051/JP/2011 dated 14.08.2014) wherein following the decision of Hon’ble Supreme Court in case of CIT Coimbatore vs. M/s Textool Co. Ltd (supra), the matter was decided in favour of the assessee and the relevant finding is contained at para No. 17 which is reads as under:-

It was accordingly submitted that necessary relief may be granted to the assessee as the scheme has been duly approved by the ld. CIT and there is no dispute that the assessee has actually made the payment to the gratuity fund maintained with LIC.

Per contra, the ld. DR relied on the findings of the lower authorities. It was submitted that the approval to the gratuity fund has been granted by the ld. CIT, Kota w.e.f 01.10.2018, hence, any payment made on or after shall be in compliance with the approved gratuity scheme. However, in the instant case, since the payment is made prior to the effective date when the approval so granted by the ld. CIT, Kota, gratuity disallowance has rightly been made by the Assessing Officer in terms of section 36(1)(v) of the Act. He accordingly submitted that there is no infirmity in the findings of the ld. CIT (A) which should be confirmed.

We have heard the rival contentions and perused the material available on record. We find that the gratuity scheme has been approved by the ld. Pr. CIT, Kota w.e.f 01.10.2018. The claim of the assessee is that since there is no change in the trust deed and other terms and conditions of setting up of the fund maintained with LIC, the said approval should be read retrospectively w.e.f 03.02.2003 from the date of original application and given that, no disallowance should be made in the hands of the assessee bank.

We find that the approval to the gratuity scheme has been granted by the ld PCIT on 29.10.2018 effective from 1.10.2018. Given that the said approval has been granted subsequent to the order of ld. CIT(A) dated 9.01.2018, there is no finding recorded by the ld CIT(A) or a declaration in the approval so granted by the PCIT in terms of whether the said approval has been granted with reference to the earlier application filed by the assessee in the year 2003 or in pursuance to the fresh application filed on 10.08.2018 and in any case, the assessee has moved an application in this regard before the ld PCIT seeking necessary amendment/clarification to the approval which is apparently pending his decision. Therefore, as far as the contention of the ld. AR regarding retrospective applicability of the approval so granted by the ld. Pr. CIT, Kota is concerned, we find that the matter is currently pending decision of the ld PCIT and it is advisable for the assessee to pursue the same with him. At the same time, the Assessing officer should also verify the same with the ld PCIT. We therefore set-aside this issue to the file of the Assessing officer to verify the effective date from when the approval of gratuity scheme has been finally granted by the ld PCIT and decide the matter as per law.

Another contention of the ld AR is that given that the assessee has actually made the payment to the gratuity fund maintained with LIC amounting to Rs. 51,58,859/- during the financial year relevant to the impugned assessment year, following the decision of the Hon’ble Supreme Court in case of Textool Co Ltd (supra), the assessee deserve the necessary relief. We find that in that case, the issue for consideration was allowability of payment towards the gratuity fund made by the assessee directly to the LIC and not to an approved gratuity fund under Section 36(1)(v) of the Act. In that context, there was concurrent findings recorded by the appellate authorities that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the assessee in the said fund ultimately came back to the Textool Employees Gratuity Fund, approved by the Commissioner with effect from the following previous year. Considering the same, the Hon’ble Supreme Court held that the conditions stipulated in Section 36(1)(v) of the Act were satisfied. In the instant case, there is no finding recorded by either the Assessing officer or by the ld CIT(A) in this regard and further, there is nothing on record in terms of master policy issued by the LIC and how the funds have been accounted for by LIC and in whose account/benefit and how the same have been refunded. Therefore, in absence of findings of the lower authorities and in absence of material available on record, the matter deserves to be set-aside to the file of the Assessing officer to examine the same afresh as per law.