AI Drafter 
TaxTMI 
TaxTMI 
2004 (4) TMI 51
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....questions: "1. Whether, on the facts and in the circumstances of the case and also in view of the fact that remittance had not been made before the due date, the assessee is entitled to claim deduction of the sum of Rs. 11,25,965 as gratuity premium? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the provisions of section 43B are not applicable in respect of the claim for the deduction of premium payable towards gratuity to which section 40A(7)(b) applies? 3. Whether, on the facts and in the circumstances of the case and in the light of the section 43B, a provision towards the contribution to an approved gratuity fund is allowable under section 40A(7)(b) of the Income-tax Act?" Similarly in I. T. A. No. 37 of 2000 the appellant had raised the following six questions and this court had ordered notice on all those questions. "1. Whether, on the facts and in the circumstances of the case and also in view of the fact that remittance had not been made before the due date, the assessee is entitled to claim deduction of the sum of Rs. 9,714 as gratuity premium? 2. Whether, on the facts and in the circumstances ....
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....o which of these two provisions has got an overriding effect. If section 40A(7) is subject to section 43B the deduction of the provision towards the contribution to the approved gratuity fund cannot be allowed unless there is actual payment, that too within the due date, provided there is a due date for such payment. On the other hand, if notwithstanding the provisions of section 43B, section 40A(7)(b) has got an overriding effect then, subject to fulfilment of the conditions specified in section 40A(7)(b), the provision is an allowable deduction. The brief facts are as follows: The respondent-assessee is a limited company engaged in manufacturing tiles, ridges, etc. The assessment years concerned, as already noted, are 1991-92 and 1990-91, the relevant previous year ended March 31, 1991, and March 31,1990, respectively. Since the detailed reasons so far as the questions involved in both these cases are dealt with in the order for the assessment year 1991-92 which is the subject-matter of I. T. A. No. 7 of 2000, the facts of the said appeal are mentioned first. For the assessment year 1991-92 the previous year ended on March 31, 1991, the respondent-assessee filed a return of in....
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....sioner of Income-tax (Appeals), Calicut. The said appeals were disposed of by the appellate authority by two separate orders dated November 28,1994, for the assessment year 1991-92 and dated December 23, 1994, for the assessment year 1990-91. The first appellate authority took the view that a sum of Rs. 11,12,965 being the premium payable to the L. I. C. under the group gratuity-cum-life insurance premium for the year ended March 31, 1991, is liable to be deducted. According to the first appellate authority, no due date has been prescribed under section 36(1)(v) as contrasted with section 36(1)(va) read with section 2(24) and section 43B. In appeal filed by the Department against the said order the Income-tax Appellate Tribunal considered the question as to whether the assessee had paid the premium within the due date prescribed under the Explanation below clause (va) of sub-section (1) of section 36 with reference to the policy under the group gratuity scheme produced by the assessee. The Tribunal found that under the policy the premium was payable before March 30, 1990, and that since the remittances were made only on June 7, 1991, and October 25, 1991, it was held that the Commi....
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....r the group gratuity scheme for the reason that the amount was not actually remitted before the due date since the payment is seen made only on August 9, 1990, after the end of the previous year. The Tribunal relying on its own order in the case of the assessee for the year 1991-92 upheld the order of the Commissioner of Income-tax (Appeals) and dismissed the Revenue's appeal. The claim for deduction of the ESI contribution of Rs. 12,712 was considered in paragraph 5 of the appellate order. The Tribunal noted that the assessee had paid the said amount on May 8, 1989, during the relevant previous year, but the Assessing Officer was of the view that the payment was not made before the due date as defined in the Explanation below section 36(1)(va) and so the same was to be disallowed under section 43B. The Tribunal, noted the contention of the Revenue that the ESI payment was for the welfare of the employees and the same would fall under clause (b) of section 43B. The Tribunal after adverting to the Explanation to section 36(1)(va) and the provisions of section 2(24)(x), observed that it is clear from the Explanation that, the definition of "due date" as appearing in the Explanation i....
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.... made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity that has become payable during the previous year. The case of the assessee is that by virtue of clause (b)(i) of sub-section (7) of section 40A the provision for contribution to the approved gratuity fund is an allowable deduction. This requires detailed consideration. The stand of the Revenue, as already noted, is that notwithstanding the provisions of section 40A(7)(b) of the Act, in view of the provisions of section 43B of the Act, unless the gratuity amount is paid within the due date no deduction of the contribution to the approved gratuity fund can be allowed. Let us now see the provisions of sections 40A(7) and 43B of the Act. Section 40A(1) and (7)(a) and (b)(i) reads as follows: "40A. Expenses or payments not deductible in certain circumstances. - (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head 'Profits and gains of business or profession' . . . (7) (a) ....
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....sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date. Explanation 1. -For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. Explanation 2. -For the purposes of clause (a), as in force at all material times, 'any sum payable' means a sum for which the assessee incurred liability in the previous year even though su....
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...., the provisions of section 40A shall have effect notwithstanding anything to the contrary contained in any other provision of the Act. Payments of deductions or provision for deduction could have been eligible for deduction or could have been deducted either under section 28 or under section 37 of the Act. But the use of the non obstante expression makes it clear that if there is any legislative base dealing with the provision for gratuity, then the same would be applicable inspite of and notwithstanding any other provision of the Act read with the marginal notes of section 40A, the non obstante clause of sub-section (1) of section 40A has an overriding effect over the provisions of any other section by providing that the provisions of the section will have effect notwithstanding anything to the contrary contained in any other provision relating to the computation of income under the head 'Profits and gains of business or profession'. Expenditures or allowances which are deductible under any other provision relating to the head 'Business or profession' will be disallowed in cases to which these provisions of the section apply. This sub-clause was inserted by the Finance Act, 1975,....
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....nt of gratuity. Clause (b)(i) excludes from the operation of clause (a) contribution to an approved gratuity fund and amount provided for or set apart for payment of gratuity which would be payable during the year of account. Clause (b)(ii) deals with a situation where the assessee might provide by the spread-over method and provides that such provision would be excluded from the operation of clause (a) provided the three conditions laid down by the sub-clauses are satisfied." Of course the Supreme Court in the said decision did not consider the effect of the provisions of section 43B inserted by the Finance Act, 1983, with effect from April 1, 1984, for, the assessment years concerned in the said case were 1973-74 and 1974-75. Now, it would appear that there is a conflict between the provisions of section 40A(7)(b) and section 43B insofar as both the provisions use the non-obstante clause. It is significant to mention here that section 40A(7) was there in the Act when section 43B was inserted and even prior to April 1, 1984, from which date section 43B is given effect to. Thus, the question would be which of the two sections has got overriding effect. The Calcutta High Court....
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.... in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. The second proviso says that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36. The Explanation refers to the due date which means the date by which the assessee is required as an employer to credit the employees' contribution to the employees' account in the relevant fund under any Act, rule or order or notification issued thereunder or under any standing order, award, contract of service or otherwise. The present case is covered by clause (b) of section 43B. Whether the second proviso and the Explanation to clause (va) of sub-section (1) of section 36 has application is also an issue. A Division Bench of this court had occasion to consider the scope of section 43B read with section 36(1)(va), Explanation, in CIT v. South India Corporation Ltd. [2000] 242 ITR 1....
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....n to any provision made for the purpose of payment of a sum by way of contribution towards an approved gratuity fund that has become payable during the previous year or for the purpose of meeting actual liability in respect of payment. Thus, but for the provisions of section 43B enacted, the assessee would have been entitled to deduction of the provision for gratuity by virtue of section 40A(7)(b)(i) of the Act subject to fulfilment of the conditions specified therein. Section 43B introduced subsequent to the introduction of the provisions of section 40A(7) clearly provides that notwithstanding anything contained in any other provisions of this Act (which will clearly take in section 40A(7) also) a deduction otherwise allowable under this Act in respect of any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees shall be allowed, irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him, only on computing the income referred to in section 28 of that pr....
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....rent situations. The view of the Tribunal that payment having been made before the close of the financial year, qualifies for deduction is indefensible". Another Division Bench to which one of us (Sivarajan J.) was a party in the judgment dated October 10, 2002 in I. T. A. No. 92 of 2000 (CIT v. G. T. N. Textiles Ltd. [2004] 269 ITR 282 (Ker)) considered the contention on behalf of the assessee that the aforesaid decision does not apply to the case of payment of the employer's contribution as the Explanation to section 36(i)(va) read with section 2(24)(x) of the Act refers to the employee's contribution to the employee's account in the relevant fund and not to the employer's contribution. The Division Bench after noting the afore quoted portion of the judgment in South India Corporation Ltd.'s case [2000] 242 ITR 114 (Ker) held that the said decision squarely applies to the case on hand without any distinction. This decision was followed by another Division Bench in CIT v. Jairam and Sons [2004] 269 ITR 285 (Ker). In the light of the above two decisions it is clear that the second proviso to section 43B read with the Explanation to section 36(1)(va) applies to a claim for deduct....
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....SC 984 that: "a law which is essentially general in nature may contain special provisions on certain matters and in respect of these matters it would be classified as a special law. Therefore, unless the special law is abrogated by express repeal or by making provisions which are wholly inconsistent with it, the special law cannot be held to have been abrogated by mere implication" was noted. The court thereafter observed that there should be a clear inconsistency between the two enactments before giving an overriding effect to the non obstante clause but when the scope of the provisions of an earlier enactment is clear the same cannot be cut down by resort to the non obstante clause. On the said principle it was held that the amendment cannot be justified because there is a non obstante clause in rule 3(2) it cannot be interpreted that the said amendment to the general rules, though later in point of time, would abrogate the special rule the scope of which is very clear and which co-exist particularly when no patent conflict or inconsistency can be spelt out. The aforesaid view of Justice K. Jayachandra Reddy was endorsed by Justice Kuldip Singh though Justice Yogeshwar Dayal d....
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....consideration to a particular subject. When a general Act is subsequently passed, it is logical to presume that Parliament has not repealed or modified the former special Act unless it appears that the special Act again received consideration from Parliament." In determining whether a statute is a special or a general one, it was noted that the Supreme Court in Life Insurance Corporation v. D. J. Bahadur, AIR 1980 SC 2181 observed that focus must be on the principal subject-matter plus the particular perspective and for certain purposes, an Act may be general and for certain other purposes it may be special and the distinctions cannot be blurred when dealing with finer points of law. The Supreme Court then observed that the Public Premises Act is a later enactment whereas the Rent Control Act is an earlier enactment and that the Public Premises Act represents the later will of Parliament and should prevail over the Rent Control Act unless it can be said that the Public Premises Act is a general enactment, whereas the Rent Control Act is a special enactment and being a special enactment the Rent Control Act should prevail over the Public Premises Act. We have already noted the....
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....lear inconsistency between the two provisions, viz., section 40A(7) and section 43B. Section 40A(7) is in negative terms and section 43B is in positive terms, the effect of both these provisions is that in order to claim deduction in respect of payment to a gratuity fund there must be actual payment and that deduction cannot be allowed on the basis of any provision. The only exception to the above rule is with regard to the provision for payment to an approved gratuity fund. It cannot be interpreted that the later provision in section 43B by introducing the non obstante clause would abrogate the special provision with regard to the provision made for payment to an approved gratuity fund contained in section 40A(7)(b)(i). This is all the more so since no patent conflict or inconsistency can be spelt out. Both the provisions can co-exist. A harmonious construction of the aforesaid two provisions would clearly indicate that the Legislature never intended to take away the benefit conferred under clause (b) of section 40A(7) by the provisions of section 43B(b) of the Act. Here, it must be noted that the Tribunal has adopted the aforesaid principle which was applied by the Jaipur Benc....