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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN & SHRI INTURI RAMA RAO
आदेश / O R D E R
PER SHRI GEORGE MATHAN, JUDICIAL MEMBER : This is an appeal filed by the assessee directed against the order of the learned Commissioner of Income Tax (Appeals)-11, Chennai (hereinafter called as ‘CIT(A)’) in I.T.A. No.316/CIT(A)-11/2014-15 dated 20.09.2017 for the assessment year 2006-07.
ITA No.2680/Chny/2017 :- 2 -:
Mr. R. Vijayaraghavan, Advocate represented on behalf of the 2.
Assessee and Ms. R. Anitha, JCIT represented on behalf of the Revenue.
It was submitted by the learned Authorized Representative that the only
issue in the assessee’s appeal was against the action of the learned CIT(A) in
confirming the disallowance of provision for gratuity which was otherwise
allowable u/s.40A(7)(b) of the Income Tax Act, 1961, by applying the
provisions of Section 43B of the Act. It was submitted that the issue was
squarely covered by the decision of the Co-ordinate Bench of this Tribunal in
the assessee’s own case for immediately succeeding assessment year in
I.T.A. No.1551/Mds/2014 dated 12.12.2014, wherein the Co-ordinate Bench
has held as follows:
Heard both sides. Perused orders of lower authorities and the decision relied on. The assessee during the relevant assessment year 2007-08 created provision of Rs.32,54,120/- towards gratuity with LIC of India. This fund was approved by the Commissioner of Income Tax. The Assessing Officer disallowed the said provision for gratuity for the reason that assessee did not pay the said gratuity during the assessment year 2007-08. The Assessing Officer was of the view that since the assessee has made only provision the same is not allowable in view of the specific provisions of section 43B of the Act. The Commissioner of Income Tax (Appeals) deleted the disallowance following the order passed in assessee’s own case for the assessment years 2005-06 & 2006-07 by orders dated 01.12.2011 & 01.02.2013 respectively. It was the submission of the counsel that no further appeal was preferred by the Revenue and the order of the Commissioner of Income Tax (Appeals) was accepted. On a perusal of the decisions relied on by the assessee, we find that this issue has been considered by various High Courts and held that the provisions made by the assessee towards contribution to approved gratuity fund is an ascertained liability and is allowable as deduction under section 40A(7)(b) of the Act. It was further held that the provisions of section 40A(7)(b) overrides section 43B of the Act. Similar view was also taken by the Third Member of Jaipur Bench of this Tribunal in case of Mewar Sugar Mills Ltd., Vs. DCIT (supra). 6. The Hon’ble Kerala High Court in the case of CIT Vs. Common Wealth Trust (P) Ltd., & Anr. (supra) held as under:- “Section 40A(7) of the Income-tax Act, 1961, was introduced by the Finance Act, 1975, with retrospective effect from April 1, 1973, and section 43B was introduced by the Finance Act, 1983, with effect from April 1, 1984. Section 40A says that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of the Act relating to the computation of income under the head “Profits and gains of business or profession”. Similarly,
ITA No.2680/Chny/2017 :- 3 -:
section 43B opens with a non-obstante clause, Section 40A(7) provides that in cases covered by the provisions of clause (a) no deduction shall be allowed in respect of any provisions whether called as such or by any other name made by the assessee for the payment of gratuity of his employees on their retirement or on termination of their employment for any reason. However, clause (b) of section 40A(7) clearly provides that to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year clause (a) will not apply. This means exception has been carved out in respect of payment of sums by way of any contribution towards an approved gratuity fund. Thus the Legislature wanted to give a special treatment to provision made by an assessee for the purpose of payment by way of any contribution towards an approved gratuity fund. This has to be treated as a special provision. The marginal note to section 43B clearly says “certain deductions to be only on actual payment”. It deals with various items. Section 43B(b) deals generally with any sum payable by the assessee as an employer by way of contribution to any provident fund at superannuation fund or gratuity fund or any other fund for the welfare of the employees. Of course, the gratuity fund is also referred to Section 40A(7), clause (b), particularly sub-clause (i), thereof is a special provision in regard to a claim for deduction based on a provision made for payment towards the approved gratuity fund. There is no clear inconsistency between the two provisions, viz., sections 40A(7) and 43B. Section 40A(7) is in negative terms and section 43B is in positive terms, the effect of both these provisions is that in order to claim deduction in respect of payment to a gratuity fund there must be actual payment and that deduction cannot be allowed on the basis of any provision. The only exception to the above rule is with regard to the provision for payment to an approved gratuity fund. It cannot be interpreted that the later provision in section 43B by introducing he non- obstante clause would abrogate the special provision with regard to the provision made for payment to an approved gratuity fund contained in section 40A(7)(b)(i). This is all the more so since no patent conflict or inconsistency can be spelt out. Both the provisions can co-exist. A harmonious construction of the two provisions would clearly indicate that the legislature never intended to take away the benefit conferred under clause (b) of section 40A(7) by the provisions of section 43B(b).
The Hon’ble Delhi High Court in the case of CIT Vs. Bechtel India (P) Ltd., (supra) held as under:-
“6. Further, we are in agreement with the Tribunal that Section 40(7)(b) of the Act will have an ‘overriding effect over Section 43B of the Act. In the first place section 40A(1) is an unequivocal non-obstante clause and since Section 40A(7)(b) specifically permits a deduction of a sum constituting the provision towards an approved gratuity fund, the said provision will take precedence over a comparatively general provision like Section.43B. Secondly, Section 40A(7)(a) which disallows deduction of any provision of gratuity to employees on their retirement is itself made subject to Section 40A(7)(b) which allows such deduction as long as it is made towards an approved gratuity fund. There is no dispute that in the instant case the provision made is towards contribution to an approved gratuity fund. Therefore, the claim by the assessee for deduction on this score was clearly justified. We are accordingly of the opinion that no substantial question of law arises in this regard as well.”
ITA No.2680/Chny/2017 :- 4 -: 8. Respectfully following the said decisions, we uphold the order of the Commissioner of Income Tax (Appeals) in deleting the disallowance made for approved gratuity funds.” 4. In reply, the learned Departmental Representative vehemently supported the order of the learned Assessing Officer and the learned CIT(A).
We have considered the rival submission and perused the materials
available on record.
As it is noticed, the issue is now squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for immediately
succeeding assessment year as extracted above, respectfully following the
decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case referred to supra, the Assessing Officer is directed to grant the assessee the
benefit of deduction u/s.40A(7)(b) of the Income Tax Act, 1961 of the provision for gratuity to the Approved Gratuity Fund maintained with the Life Insurance
Corporation of India.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 27th November, 2019 in Chennai.
Sd/- Sd/- (इंटूर� रामा राव) (जॉज� माथन) (INTURI RAMA RAO) (GEORGE MATHAN) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER
चे�नई/Chennai, �दनांक/Dated: 27th November, 2019. IA, Sr. P.S आदेश क� ��त�ल�प अ�े�षत/Copy to:
ITA No.2680/Chny/2017 :- 5 -: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF