Appeal allowed: Gratuity fund contribution deductible under Section 36(1)(v)

The tribunal allowed the appeal, ruling that the contribution to the gratuity fund is deductible under Section 36(1)(v) from the date the fund was created. The alternative claim under Section 37 was rejected as inapplicable. The order was pronounced on 15th November 2017.

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Issues Involved:
1. Disallowance of contribution to gratuity fund under Section 36(1)(v).
2. Alternative claim of deduction under Section 37 as business expenditure.

Detailed Analysis:

1. Disallowance of Contribution to Gratuity Fund:
The primary issue in this appeal is the disallowance of Rs. 5,63,235 contributed to a gratuity fund. The assessee set up an employees’ gratuity fund effective from 1st January 2010 and made an initial payment to the Life Insurance Corporation of India. The fund applied for approval on 7th April 2010, and the Commissioner of Income Tax granted approval effective from that date. The Assessing Officer disallowed the deduction on the grounds that the contribution was made before the fund was approved, and this decision was upheld by the CIT(A).

The tribunal examined whether contributions made to a gratuity fund before its approval can be allowed as a deduction. It noted that the approval by the Commissioner, effective from the application date, was a post facto approval. The tribunal emphasized that the Commissioner’s power to set the approval date should be exercised in a manner that prevents unjustified hardship to the assessee and aligns with the scheme of the law. The tribunal concluded that the approval should be effective from the date the fund was created, i.e., 1st January 2010, and thus the contribution should be deductible under Section 36(1)(v).

2. Alternative Claim under Section 37:
The assessee alternatively claimed that if the contribution is not allowed under Section 36(1)(v), it should be allowed as a business expenditure under Section 37. The tribunal rejected this argument, stating that Section 37(1) applies only to expenses not covered under Sections 30 to 36. Since the contribution to the gratuity fund is specifically covered under Section 36(1)(v), it cannot be considered under Section 37(1).

Conclusion:
The tribunal allowed the appeal, holding that the contribution to the gratuity fund is deductible under Section 36(1)(v) from the date the fund was created. The alternative claim under Section 37 was rejected as inapplicable. The order was pronounced on 15th November 2017.

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