2016 (7) TMI 940 - HC - Income Tax

Income-tax Act: Contributions distinction upheld. Gratuity provision disallowed due to lack of evidence.

M/s Bihar State Warehousing Corporation Ltd. Versus Commissioner of Income Tax- 1, Patna and Dy. Commissioner of Income Tax, Circle-2, Patna

The Court upheld the addition under Section 2(24)(x) read with Section 36(1)(va) of the Income-tax Act, distinguishing between employees' and employer's ... Addition under Section 2 (24)(x) read with Section 36(1)(va) - provision for gratuity made towards approved gratuity fund - Addition u/s 40A - Held that:- Only before this Court for the first time the plea has been taken by the assessee that the provision has been made for the purpose of payment to an approved gratuity fund, i.e., the LIC Group Gratuity Scheme. It is apparent that the appellant is now trying to raise, at a belated sage, a pure question of fact which has not been raised by it before any of the three lower authorities. As such a pure question of fact cannot be permitted to be raised by the assessee at this belated stage. Along with the memorandum of appeal the assessee has brought on record two letters dated 27.08.2002 and 31.03.2003 of the Life Insurance of India which merely refers to LIC Group Gratuity Scheme for the employees of the assessee and the amounts that would become payable, if the assessee subscribes to the said scheme. The date of the second letter is 31.03.2003, i.e., last date of the previous year of the assessment year in question and till that date it does not appear that there was any concluded contract between the assessee and the LIC for subscribing to the said scheme nor anything has been brought on the record to show that the contribution had been made for the previous year relevant to the assessment year in question. In the said circumstances, it is not open to learned counsel for the appellant to even raise and argue such a question in view of the clear provisions of Section 40A (7) of the Act. The appellant was certainly not entitled to deduction of the said provision made for gratuity and see no reason to interfere with the finding that has been recorded concurrently by all the three authorities. Thus, in the light of the aforesaid discussions, the first substantial question of law is decided in the negative, in favour of the assessee and against the revenue. Second substantial question of law that whether the Tribunal was correct in holding that the assessee was not entitled to deduction of gratuity in view of Section 40A is answered in the affirmative against the assessee and in favour of the revenue. Issues Involved1. Justification of addition under Section 2(24)(x) read with Section 36(1)(va) of the Income-tax Act.2. Deduction of provision for gratuity under Section 40A(7) of the Income-tax Act.Issue-wise Detailed Analysis1. Justification of Addition under Section 2(24)(x) read with Section 36(1)(va) of the Income-tax ActThe Tribunal upheld the addition of Rs. 8,32,507/- made under Section 2(24)(x) read with Section 36(1)(va) of the Income-tax Act. The assessee argued that the Tribunal failed to follow its earlier order in a similar case (M/s. Sintra Ltd. vs. ACIT), where the delay in crediting employees’ contributions was condoned, and the addition was deleted. The assessee contended that both employees' and employer’s contributions should be treated similarly under Section 43B of the Act, citing the Supreme Court's decision in Commissioner of Income-tax vs. Alom Extrusions Ltd., which did not distinguish between the two types of contributions. The Tribunal, however, distinguished between the delayed payments of employees’ and employer’s contributions, holding that only the latter is covered by Section 43B, while the former falls under Section 24(2)(x) read with Section 36(1)(va).The Court agreed with the broader interpretation that both contributions should be treated similarly, referencing decisions from the Bombay High Court and Punjab and Haryana High Court, which supported this view. Thus, the first substantial question of law was decided in favor of the assessee, against the revenue.2. Deduction of Provision for Gratuity under Section 40A(7) of the Income-tax ActThe Tribunal confirmed the disallowance of Rs. 7,64,335/- towards the provision for gratuity under Section 40A(7) of the Act. The assessee claimed that the provision was made towards an approved gratuity fund and based on actuarial valuation. The Tribunal, however, found no evidence that the provision was made towards an approved gratuity fund or for gratuity payable during the financial year. The Tribunal relied on the Supreme Court's decision in Shree Sajjan Mills Ltd. vs. Commissioner of Income Tax, which disallowed similar provisions.The Court noted that the assessee failed to provide a timely response to the Assessing Officer's notice and did not raise the issue of the approved gratuity fund before the lower authorities. The Court found no evidence of a concluded contract with LIC for the Group Gratuity Scheme during the relevant financial year. Consequently, the second substantial question of law was reframed and decided in the affirmative, against the assessee and in favor of the revenue.ConclusionThe appeal was partly allowed. The first substantial question of law was decided in favor of the assessee, while the second was decided against the assessee.