1991 (2) TMI 75 - HC - Income Tax

Court Allows Deduction for Approved Gratuity Fund Contributions (1)(v)

The court ruled in favor of the assessee, allowing the deduction for the contribution to the approved gratuity fund for the assessment year 1977-78. The ... Approved Gratuity Fund, Business Expenditure Issues:- Deduction for contribution to an approved gratuity fund for the assessment year 1977-78.- Disallowance of initial fund contribution by the Income-tax Officer.- Interpretation of section 36(1)(v) of the Income-tax Act, 1961.- Compliance with statutory rules regarding gratuity fund contributions.- Precedents regarding deductions for approved gratuity fund contributions.Analysis:The case involved a dispute regarding the deduction of Rs. 1,36,261 for the assessment year 1977-78, related to the contribution made to an approved gratuity fund. The assessee had established a fund towards gratuity liability in October 1975, which was approved with retrospective effect during the relevant assessment year. The Income-tax Officer disallowed the deduction, citing a similar disallowance in a previous year. However, the Appellate Tribunal and Commissioner of Income-tax (Appeals) upheld the assessee's claim under section 36(1)(v) of the Act.The Tribunal found that the gratuity fund approval was granted after the establishment of the fund, and contributions could only be made post-approval. The Tribunal also highlighted the provision allowing the initial contribution to be made in five annual instalments. The Revenue contended that the contribution was related to past services and, therefore, not deductible. However, the Tribunal emphasized the significance of approval for deductions under section 36(1)(v) and the statutory limitations on contributions.The judgment referenced the Supreme Court's decision in Shree Sajjan Mills Ltd. v. CIT, emphasizing the deductibility of estimated liabilities under a gratuity scheme if properly ascertainable. It noted that contributions to an approved gratuity fund are deductible under section 36(1)(v), subject to compliance with statutory rules. The judgment highlighted Rule 103 and Rule 104, which govern annual and initial contributions to approved funds, respectively.Further, the judgment cited the Madras High Court's decision in Triplicane Permanent Fund Ltd. v. CIT, affirming the deductibility of contributions to approved funds. The court dismissed the Revenue's argument based on a previous disallowance, stating that as long as contributions meet statutory requirements, the deduction is permissible. Consequently, the court ruled in favor of the assessee, allowing the deduction for the contribution to the approved gratuity fund for the assessment year 1977-78.