2015 (10) TMI 253

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....incurred on payments made to the pensioners is allowable in the hands of the assessee as revenue despite the facts that the Tribunal in its order held that the expenditure is allowable on actual payment basis for assessment year 2002-03 and in the assessment year 2003-04 on the basis of total contribution to the unrecognized Pension Fund, therefore, the decision of Hon'ble ITAT is self contradictory? ii) Whether on facts and in the circumstances of the case, the Tribunal was justified in holding that the amount actually disbursed to the pensioners is allowable as revenue expenditure notwithstanding the fact that the said amount was not an allowable deduction under section 36(1)(iv) and (v) of the Income Tax Act, 1961?" 3. A few facts relevant for the decision of the controversy involved as narrated in ITA No.370 of 2014 may be noticed. Original assessment in this case was completed vide order dated 13.12.2004 under Section 143(3) of the Act assessing the total loss of the assessee at Rs. 7,85,04,010/- including brought forward loss of Rs. 1,90,72,362/-. During the assessment proceedings, the Assessing Officer noted that the assessee had claimed deduction on account of contrib....

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....t what was not allowed directly could not have been indirectly allowed even under section 37(1) of the Act. Learned counsel relied upon judgment of the Delhi High Court in Sony India P. Limited's case (supra). 6. On the other hand, learned counsel for the assessee did not dispute that in the light of contribution to unrecognized provident fund, superannuation fund and gratuity fund, certain deductions were not admissible under Section 36(iv) and (v) of the Act. It was contended that the Tribunal has only allowed actual expenditure disbursed to the pensioners for the assessment year 2002-03 whereas it was restricted to the amount contributed towards the pension fund as it was less than the actual disbursement for the assessment year 2003-04 which was legally permissible. 7. After hearing learned counsel for the parties, we find substance in the submissions of learned counsel for the assessee. It would be expedient to reproduce Sections 36(1)(iv) and (v) of the Act which is in following terms:- "36 (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- xx xx xx ....

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.... permissible to be deducted from the income under Section 37 of the Act. There was no error in the approach of the Tribunal in allowing the aforesaid expenditure as deduction under Section 37 of the Act. 10. The Supreme Court in Shree Sajjan Mills Limited vs. Commissioner of Income Tax, MP Bhopal and another, AIR 1986 SC 484 held as under:- "24. The right to receive the payment accrued to the employees on their retirement or termination of their services and the liability to pay gratuity became the accrued liability of the assessee when the employees retired or their services, were terminated. Until then the right to receive gratuity is a contingent right and the liability to pay gratuity continues to be a contingent ability qua the employer. An employer might pay gratuity when the employee retires or his service is terminated and claim the payment made as an expenditure incurred for the purpose of business under section 37. He might, if he followed the mercantile system, provide for the payment of gratuity which became payable during the previous year and claim it as an expenditure on the accrued basis under section 37 of the said Act. Since the amount of gratuity payable in any....

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....services were terminated and, in fact, as noticed above, the employees who did not join Rallis India Ltd. were directly paid gratuity. Assessee was obliged to pay gratuity to those employees who had joined Rallis India Ltd. Instead of those employees getting the gratuity amount directly, got that amount in trust in a separate account for the exclusive use of the transferred employees and payable to them after their services in Rallis India Ltd. terminated including the gratuity due on account of service rendered in Rallis India Ltd. as per the scheme relating to gratuity of that company. Payment of amount of gratuity to Rallis India 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 service 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 employees was an obligation in praesenti. Payment of gratuity amount to Rallis India was with the consent of the employees transferred there. We are, thus, of the view that payment of gratuity awarded by the assessee to Rallis India Ltd. i....