High Court Upholds Tribunal Decision on Deduction Claim for Gratuity Payment

Commissioner of Income Tax Versus Hindustan Wire Products Ltd.

Commissioner of Income Tax Versus Hindustan Wire Products Ltd. - [2002] 254 ITR 299, 173 CTR 100, 120 TAXMANN 744 Issues:
Deduction claim disallowed under section 43B(b) read with the second proviso.

Analysis:
The assessee filed its return for the assessment year 1992-93, declaring an income of Rs.1,16,99,320 and submitted a group gratuity scheme approved by the Commissioner of Income-tax. An amount of Rs.15 lakhs was paid towards the scheme on March 31, 1992, by a cheque to the Life Insurance Corporation. The Assessing Officer disallowed the deduction claim under section 43B(b) along with other deductions. The Tribunal later accepted the assessee's claim, leading to the Revenue filing an appeal against the Tribunal's decision.

Legal Interpretation:
The Revenue contended that the deduction was not admissible due to the cheque not being encashed within 15 days as per the second proviso of section 43B(b). However, the High Court reasoned that the assessee had made the payment, and the employees received the benefit under the policy issued by the Corporation, even though the cheque encashment entry was made after 15 days. The Court highlighted that denying the deduction would be unjust as the assessee fulfilled its obligation, and the intended beneficiaries received the benefit.

Purpose of Taxing Statute:
The Court emphasized that the interpretation of tax statutes should align with the Act's objective, which is to grant deductions for payments made towards employee benefits. Despite the delay in cheque encashment entry, the payment was deemed realized as the Corporation accepted the cheque and issued the policy, ensuring the intended purpose of the payment was fulfilled. Denying the deduction in such circumstances would be unfair and defeat the purpose of the Act.

Final Decision:
The High Court upheld the Tribunal's decision, stating it promoted justice and did not raise any substantial legal question warranting interference under section 260A of the Act. Consequently, the appeal was dismissed, affirming the Tribunal's ruling in favor of the assessee.