2003 (10) TMI 16 - HC - Income Tax

Deduction allowed only if employer credits group gratuity/employee fund by statutory or contractual due date under Sections 43B and 36(1)(va)

HC held that deduction for employer contributions to a group gratuity/employee fund under section 43B read with section 36(1)(va) is allowed only if the ... Deduction of contribution to group gratuity scheme - Interpretation of section 43B read with section 36(1)(va) - second proviso imposes the condition of payment before the due date only in respect of any sum received by an assessee from his employees to which the provisions of section 2(24)(x) - Held That:- The same legal issue came up for consideration earlier before a Division Bench of this court in CIT v. South India Corporation Ltd.[1999 (10) TMI 44 - KERALA HIGH COURT]. The Division Bench examined the effect of the proviso to section 43B and considered the question whether payments made after 'due date' are deductible or not. The scope of the Explanation to section 36(1)(va) was also considered. This court took the view that as per the Explanation to clause (va), for the purpose of the clause 'due date' means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund. It is pointed out that the amount is deductible only if the assessee credits the amount to the employee's account in the relevant fund on or before the date by which he is legally or contractually required to do so. The right to deduction would be lost if the sum is credited after the due date. This court held that it cannot be an indefinite date left to the choice of the assessee. Further, this court also pointed out that under the main provision of section 43B of the Act, the payments made during the currency of the financial year relevant to the assessment year qualify for deduction in certain cases. But in the case of payments relating to provident fund etc., stress has been laid on payment within the 'due date'. This court held, therefore, it cannot be said that payment made beyond the due date also qualifies for deduction, in view of the prescription in the main provision itself. Thus, we are of the view that the questions referred by the Tribunal are to be answered in favour of the Revenue and against the assessee. It is so answered and the I. T. R. is disposed of accordingly. Issues:1. Interpretation of section 43B read with section 36(1)(va) regarding deduction of contribution to group gratuity scheme.Analysis:The judgment dealt with the interpretation of section 43B of the Income-tax Act in relation to the deduction of contributions to a group gratuity scheme. The assessee, a partnership firm engaged in shipping agency business, contested the disallowance of Rs. 32,900 claimed as payment made to the Life Insurance Corporation under the Group Gratuity Scheme. The dispute arose from the timing of the payment, as the assessee remitted the amount on January 18, 1991, after the due date specified by the Life Insurance Corporation. The Commissioner of Income-tax (Appeals) upheld the disallowance, citing the second proviso to section 43B and the Explanation to section 36(1)(va) which defines the due date for payments. The Tribunal, however, disagreed with this interpretation and allowed the deduction, emphasizing that the due date applied only to employees' contributions and not to the employer's contribution. The Tribunal's decision was based on the distinction between the two types of contributions and the specific provisions of the Income-tax Act.The judgment referenced a previous decision by a Division Bench of the court in CIT v. South India Corporation Ltd., which clarified the significance of the due date for crediting contributions to employees' accounts in relevant funds as per the Explanation to section 36(1)(va). The court in the earlier case emphasized the importance of adhering to the due date for deductions related to provident fund payments, highlighting that payments made after the due date may not qualify for deduction. Subsequently, another Division Bench in CIT v. G. T. N. Textiles Ltd. reiterated the principles established in the earlier case, emphasizing that the same logic applied to both employee and employer contributions to gratuity funds. The court reaffirmed that adherence to due dates was crucial for claiming deductions under section 43B.In light of the precedents and legal principles outlined in previous decisions, the High Court of Kerala ruled in favor of the Revenue and against the assessee in the present case. The court concluded that the questions referred by the Tribunal should be resolved in favor of the Revenue, thereby upholding the disallowance of the claimed deduction for the contribution to the group gratuity fund. The judgment underscored the importance of adhering to due dates and the specific provisions of the Income-tax Act for determining the eligibility of deductions related to gratuity scheme contributions.