LIC Group Gratuity Scheme contributions allowed as deduction under section 37(1) despite delayed approval

ITAT Kolkata allowed the assessee's claim for deduction of contributions to LIC Group Gratuity Scheme under section 37(1). The assessee had applied for gratuity fund approval in 2002 and entered into LIC agreement effective from 2002, but approval was delayed until 2023 without fault of the assessee. The Tribunal noted that employees received gratuity payments from LIC during the period, similar claims were allowed in previous years, and Rule 5 of 4th Schedule treats gratuity as salary which is allowable under section 37(1). The Tribunal applied principles of reasonable construction, holding the assessee should not suffer due to departmental delays in processing approval.

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Issues Involved:
1. Disallowance of contribution to LIC Group Gratuity Scheme u/s 36(1)(v) of the Income-tax Act, 1961.
2. Alternate claim for deduction u/s 37(1) of the Income-tax Act, 1961.

Summary:

Issue 1: Disallowance of Contribution to LIC Group Gratuity Scheme u/s 36(1)(v)
The assessee challenged the disallowance of Rs. 12,14,720/- contributed to the LIC Group Gratuity Scheme (LICGGS) u/s 36(1)(v) of the Income-tax Act, 1961. The Ld. AO disallowed the claim as the gratuity fund was unapproved by the Commissioner of Income Tax, as reported in the tax audit report. The Ld. CIT(A) upheld this disallowance, noting the absence of approval evidence from the prescribed authority.

Issue 2: Alternate Claim for Deduction u/s 37(1)
The assessee alternatively claimed the contribution as a deduction u/s 37(1) of the Act. The Ld. CIT(A) dismissed this claim, referencing judicial precedents, including the jurisdictional High Court of Calcutta's decision in Brook Bond India Ltd. Vs. JCIT, which stated that expenditures allowable under sections 30 to 36 cannot be claimed under section 37(1).

Tribunal's Findings:
The Tribunal noted that the assessee had applied for the approval of the gratuity fund in 2002, which remained pending without justifiable reasons. The approval was granted recently, effective from 03.01.2023. The Tribunal emphasized that the assessee should not suffer due to the prolonged delay by the Department. It referenced the Supreme Court's decision in CIT Vs. Textool Co. Ltd., which supported a reasonable construction of fiscal statutes to give effect to their purpose and intention. The Tribunal also considered Rule 5 of Part C of the 4th Schedule, treating gratuity as salary, which is an allowable expense u/s 37(1).

Conclusion:
The Tribunal allowed the assessee's appeal, permitting the deduction of the contribution to the LIC Group Gratuity Scheme, applying principles of reasonable construction and considering the prolonged delay in approval by the Department.

Result:
The appeal of the assessee was allowed. The order was pronounced in the open court on 8th January, 2024.

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