THE PRINCIPAL COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM vs. M/S.ENGLISH INDIAN CLAYS LTD., VELI, THIRUVANANTHAPURAM.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY, THE 12TH DAY OF DECEMBER 2017/21ST AGRAHAYANA, 1939 ITA.No. 271 of 2015 () ----------------------- AGAINST THE ORDER/JUDGMENT IN ITA 190/COCH/2014 of I.T.A.TRIBUNAL,COCHIN BENCH, COCHIN DATED 07-05-2015 APPELLANT(S)/RESPONDENT/RESPONDENT/REVENUE: ------------------------------------------ THE PRINCIPAL COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM

BY ADVS.SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEP SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT RESPONDENT(S):/APPELLANT/APPELLANT/ASSESSEE -------------- M/S.ENGLISH INDIAN CLAYS LTD., VELI, THIRUVANANTHAPURAM.

R1 BY ADV. SRI.A.KUMAR R1 BY ADV. SMT.G.MINI(1748) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12-12-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

APPENDIX APPELLANT'S ANNEXURES ANNEXURE-A : COPY OF ORDER UNDER SECTION 143(3) OF the INCOME TAX ACT, 1961 OF the ASSESSING OFFICER DATED 25.3.2013. ANNEXURE-B : COPY OF ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), TRIVANDRUM DATED 28.3.2014. ANNEXURE-C : COPY OF ORDER OF THE ITAT IN ITA NO.190/COCH/2014 FOR THE ASSESSMENT YEAR 2010-11 DATED 7.5.2015. //TRUE COPY// PA TO JUDGE. jg-16/12

K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- ITA No.271 of 2015 ------------------------------------------- Dated this the 12th day of December, 2017 J U D G M E N T Vinod Chandran, J. The short question to be considered in this appeal is as follows:- “Whether on the facts and in the circumstances of the case, is the ITAT correct in holding that the contribution to gratuity fund before it was duly approved by the CIT could be construed as due compliance with the provisions of section 40A(7) of the Act so as to allow the same as deduction u/s 37(1) in view of the judgment in the case of Shree Sajjan Mills Ltd. v. CIT reported in (1985) {156 ITR 585 (SC)}” 2. The assessee, a Company engaged in the business of manufacture and sale of clay, had created a fund for providing gratuity to its employees. Gratuity is an allowable deduction under the Income Tax Act, 1961 and provision for the same is also allowed as a deduction subject to the condition that it should be an approved gratuity fund as provided under Section 40A(7) read with

Part-C of Schedule-IV of the Income Tax Act. 3. On facts, suffice it to notice that the assessment year is 2010-11 and the assessee had made an application under Part-C of Schedule-IV on 2.3.2010 prior to the closure of the previous year. The application was considered and allowed on 12.11.2010. The issue was as to whether prior to the gratuity fund being approved, the assessee could make a provision and claim deduction on the basis of provision made towards gratuity. The assessee relies on the decisions of the Calcutta High Court in Commissioner of Income-Tax vs. Shalimar Wire And Industries Ltd. [1991 188 ITR 814 Cal] and Commissioner of Income-Tax vs. Continental Commercial Co. Ltd., [1991 192 ITR 66 Cal.] and the Department relies on the decision of the Supreme Court in Shree Sajjan Mills Ltd. vs. Commissioner of Income Tax [1985 (156) ITR 585 (SC)]. 4. Learned Senior counsel for the Department relying on the decision in Shree Sajjan Mill’s case (supra) would contend that taxing statutes have to be construed strictly and there cannot be a reasonable measure employed to relax the rigour of the provision.

Specific reference is made to Section 40A(7)(a) to emphasise that no deduction shall be allowed in respect of any provision made by the assessee unless the condition under sub-Clause (b) of sub-Section (7) is satisfied. Sub-clause (b) specifically speaks about the rigour of sub-Clause (a) not being applicable insofar as the provision having been made towards an approved gratuity fund. The assessee could have applied sufficiently early and then there could have been provision made in the previous year of the assessment year itself, is the contention. 5. We have to notice that sub-Clause (2) of Clause 2 of Part-C specifically empowers the Commissioner, who considers the approval of the gratuity fund to grant the approval and specify the date on which it takes effect. In the present case, there is no such date specified and in such circumstances, we are inclined to hold that it should relate from the date of application itself, which is 2.3.2010. In fact, it is to be noticed that though the application was filed on 2.3.2010, the same was put up to the Commissioner on 8.3.2010. The provision is said to have been made on 31.03.2010,

at the closure of the previous year. The Commissioner, considering his workload, though justified in the delay occassioned, the assessee cannot be denied the benefit merely for reason of the delay at the hands of the Commissioner. It is also to be noticed that the conditions of approval as seen from Clause 3 of Part-C of Schedule IV have been satisfied by the fund as constituted by the assessee; found by the Commissioner himself. In such circumstances, we respectfully follow the decisions of the Calcutta High Court cited above and reject the appeal answering the question in favour of the assessee and against the Revenue. Parties to suffer their costs.

K.V INOD CHANDRAN Judge

ASHOK MENON Judge jg xxx