2009 (9) TMI 66 - SC - Income Tax

Payment to Life Insurance for Group Gratuity Fund qualifies for deduction under section 36(1)(v) as trust conditions met

Commissioner of Income Tax, Coimbatore Versus M/s Textool Co. Ltd.

SC held that payment to Life Insurance Corporation for a Group Gratuity Fund qualified for deduction under section 36(1)(v). The Court ruled that while ... Deduction u/s 36(1)(v) - payment made to Life Insurance Corporation towards Group Gratuity Fund - Held that:- True that a fiscal statute is to be construed strictly and nothing should be added or subtracted to the language employed in the Section, yet a strict construction of a provision does not rule out the application of the principles of reasonable construction to give effect to the purpose and intention of any particular provision of the Act. (See: Shri Sajjan Mills Ltd. vs. Commissioner of Income Tax, M.P. & Anr. [1985 (10) TMI 2 - SUPREME COURT]. From a bare reading of Section 36(1)(v) of the Act, it is manifest that the real intention behind the provision is that the employer should not have any control over the funds of the irrevocable trust created exclusively for the benefit of the employees – deduction allowed since the conditions stipulated in Section 36(1)(v) of the Act were satisfied Issues:Interpretation of Section 36(1)(v) of the Income Tax Act, 1961 for allowing deduction of payment made to Life Insurance Corporation towards Group Gratuity Fund.Analysis:The case involved a dispute regarding the deduction of a payment made by the assessee company directly to the Life Insurance Corporation (LIC) towards the Group Gratuity Fund under Section 36(1)(v) of the Income Tax Act, 1961. The Assessing Officer disallowed the deduction for the payment made directly to LIC, stating it was not made to an approved gratuity fund. However, the Commissioner of Income Tax (Appeals) allowed the deduction after confirming that the payment was credited by LIC to the approved gratuity fund. The Commissioner held that the objective of the fund was achieved, and a narrow interpretation of the provision would be unjust. The Tribunal, relying on a previous decision, dismissed the Revenue's appeal, leading to the matter being brought before the High Court.The High Court upheld the decision of the Commissioner and the Tribunal, emphasizing that the payments made directly to LIC were for the Group Gratuity Fund and should be credited in favor of the assessee. The High Court noted that the conditions of Section 36(1)(v) were satisfied as all payments were towards the approved fund. The Revenue contended that a strict interpretation of the provision was necessary and questioned the justification for allowing the deduction. However, the Revenue could not confirm whether the entire amount deposited with LIC returned to the fund created by the assessee for its employees.The Supreme Court, after considering the facts and legal principles, found no merit in the Revenue's appeal. It highlighted that while fiscal statutes must be construed strictly, reasonable construction should be applied to fulfill the purpose and intention of the provision. The Court emphasized that the employer should not control the funds of the trust exclusively for employees' benefit, which was satisfied in this case. As all contributions ultimately returned to the approved gratuity fund, the conditions of Section 36(1)(v) were met. Therefore, the Court dismissed the appeal, affirming the decisions of the lower authorities.In conclusion, the Supreme Court upheld the deduction of the payment made by the assessee company to LIC towards the Group Gratuity Fund under Section 36(1)(v) of the Income Tax Act, 1961, based on the fulfillment of conditions and the purpose of the provision.