TaxTMI 
TaxTMI 
TaxTMI 
2015 (4) TMI 51
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....sp; (1B) That upholding the disallowance of gratuity paid of employees is totally unjustified without considering facts, evidence and circumstances and was based on wrong misinterpretation of section 40A(7)(a) and 40A(7)(b) of the Income-tax Act and without consid ering the provisions of sections 36(1)(v) and 37 of the Income-tax Act when the same became payable during the year on termination of services of employees from appellant-society and even it was remitted to new entity, i.e., Punjab State Co-op. Bank Ltd., Chandigarh as per service rules and consent of such employees and should have been taken as paid as per section 43(2) of the Income-tax Act. 2. That upholding addition of Rs. 1,61,572 made on account of allegation of less interest charged by the Deputy Commissioner of Income-tax Cir.II, Bhatinda is also not justified and in accordance with law and also resulted double taxation of same income when the assessee has duly shown what was charged and recoverable during the year and whatever difference found recoverable and traced later on during audit has duly been shown in income of ensuing year as per same practic....
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.... applicable as per above said Service Rules: Common cadre employee Category/Designation of employee 1 Assistant General Manager 2 Senior Manager 3 Manager Non-common cadre 4 Assistant Manager 5 Accountant 6 Clerk 7 Daftri 8 Driver 9 Peon-cum-chowkidar 10 Sweeper 3.1. The officials at S. Nos. 1 to 3 (called common cadre employees) are the Employees of Punjab State Co-op. Bank Ltd., Chandigarh, and their services are being governed under the Punjab State Co-operative Financing Institution Service (Common Cadre) Rules, 1970-71. These employees are positioned either at Punjab State Co-operative Bank Chandigarh or its Divisional Officers in the State of Punjab or at different District Central Coop. Banks then salary and cost of payment of gratuity admissible to these employees for the period of their stay at that District Central Co-op. Banks are being met and borne by these District Central Co-op. Bank. Gratuity due and payable during the period of stay with such District Central Co-op Banks are also remitted and paid to apex body, i.e., the Punjab State Co-operative Bank Ltd., Chandigarh under whom they are employed. 3.2. The officials at S. No....
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....unjab State Co-operative Bank Ltd., Chandigarh and demanded gratuity due to them on their such cessation to employment with Fazilka Central Co-operative Bank, Abohar may kindly be remitted to our new employer, i.e., Punjab State Co-operative Bank Ltd., Chandigarh. Such gratuity payment due to them amounting to Rs. 22,03,792 on leaving the job from our bank was also demanded by Punjab State Co-operative Bank Ltd. Chandigarh vide letter No.10903 dated December 29, 2006 as per service rules as details given above. As such the assessee-bank was required to pay the gratuity due to them under the service rules and cannot withhold such dues and same was remitted and paid to the new employer as per calculations and details and same are detailed as under : Amount (Rs.) Particulars 22,03,792 Remitted and paid vide demand draft No. 849487 dated March 31, 2007 to Punjab State Co-operative Bank Ltd. Similarly the assessee bank was also required to pay the salary as well as gratuity liability of such employees as per service rules who worked with the assessee-bank but were actually employees of the apex bank i.e., Punjab State Co-operative Bank Ltd. for the period of their s....
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....essing Officer is not sustainable under amended section and not proper. 3.7. Learned counsel for the assessee has drawn our attention to section 43(2) of the Act which defines term "paid" consideration according to which gratuity actually paid or incurred is allowable. Section 43(2) of the Income-tax Act, defines as under : "Paid" means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head 'Profits and gains of business or profession'". 3.8. Learned counsel further made a reference to section 37 about the expenditure which also includes gratuity and which is as under : "Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure of personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head &#....
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....d. v. CIT [1998] 230 ITR 643 (SC) ; (ii) J. R. Diamonds Ltd. v. Asst. CIT [1999] 70 ITD 42 (Mumbai) ; (iii) CIT v. Sarada Binding Works [1985] 152 ITR 520 (Mad) ; (iv) CIT v. Salem Magnesite Pvt. Ltd. [1991] 189 ITR 154 (Bom) ; (v) CIT v. Bitoni Lamps Ltd. [2005] 277 ITR 396 (P&H) ; and Decisions of various other courts of law which are part of the paper book. All the paper judgments are placed on records to support the arguments made hereinabove. 4. The learned Departmental representative on the other hand, relied upon the orders of both authorities below. 5. We have heard the rival contentions and perused the facts of the case. For the better appreciation and to decide the present issue, for the sake of convenience, we reproduce section 40A(7) as under : "Section 40A(7)(a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (b) Nothing in clause (....
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....ing the year ending March 31, 2007 which were paid and remitted as mentioned hereinabove and no provision has been made and nothing is outstanding as at March 31, 2007. 5.2. It is pertinent to mention that the employees themselves demanded the gratuity and the letters of demand are on record at paper book 26 to 34 where it has been mentioned by each employee that he ceased to be employee of the assessee-bank with effect from the date mentioned in the letter and therefore, the assessee-bank was requested that the amount of gratuity of the service rendered by that employee in the assessee-bank be paid to the Punjab State Co-op. Bank Ltd., Chandigarh as per letter No.10983 dated December 29, 2006. The letter No. 10983 dated December 29, 2006, is a letter of the Punjab State Co-op. Bank Ltd., Chandigarh on record, where it has been asked by that bank to remit the amount of gratuity and leave salary contribution of non-cadre period in respect of non common cadre employees who were promoted as managers in the common cadre available at paper book 25. 5.3. It is also pertinent to mention that the said employees ceased to be employees of the assessee-bank and therefore, the argument of th....
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....d on behalf of the employees whose services through terminated in the assessee- company were taken over by R. Ltd. with the promise of continuity of service in R. Ltd. As far as the assessee is concerned, it was bound to make payment of gratuity to the employees whose services were terminated and, in fact, the employees who did not join R. Ltd. were directly paid gratuity. The assessee was obliged to pay gratuity to those employees who had joined R.Ltd. Instead of those employees getting the gratuity amount directly, got that amount paid to R.Ltd. who put that amount in trust in a separate account for the exclusive use of the transferred employees and payable to them after their services in R.Ltd. terminated including the gratuity due on account of service rendered in R.Ltd. as per the scheme relating to gratuity of that company. Payment of amount of gratuity to R. Ltd. was made as per the scheme of the assessee and it was not an ex gratia or some isolated payment. It was never disputed and in fact, no question raised if the services of the employees of the assessee were not terminated and that being the position, the obligation of the assessee to make payment of gratuity to its em....
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....ly, grounds 1A and 1B of the assessee are allowed. 7. As regards ground 2, the brief facts are that the Assessing Officer made an addition of Rs. 1,61,572 for the reasons that the interest was less charged from the customers. 7.1. The action of the Assessing Officer was confirmed by the learned Commissioner of Income-tax (Appeals). 7.2. It was argued by learned counsel for the assessee, Mr. Sudhir Sehgal that this addition is also totally unjustified as the assessee has shown and accounted what it has charged from the customers and recoverable from them for this year on day-to-day basis and if any difference of interest recoverable is traced later on or pointed out by the auditors due to miscalculation and oversight that has been shown in ensuing year and the same practice and method is being followed by the assessee from year to year since the start of bank and being accepted by the Department also on continuity concept and evidence regarding the same is reproduced hereunder : Assessment year Year ending Discrepancies Particulars 2004-05 31-3-2004 Net interest less charged by Rs. 3,24,872 Duly accepted by the Department 2005-06 31-3-2005 Net interest less charged by ....