TaxTMI 
TaxTMI 
2022 (10) TMI 552
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.... circumstances of the case, the ITAT was right in law in holding that in absence of share capital, deduction u/s. 36(1)(viii) cannot be allowed? (E) Whether, on the facts and in the circumstances of the case, the ITAT was right in law in concluding that grant given to various cooperative societies is not deductible expenditure u/s.36(1)(xii) of the Act and holding that the same are not in the nature of expenditure? (F) Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that in absence of approval to deed of variation the payment of Rs.5,61,56,408/- being contribution made to National Dairy Development Board Employees Group Gratuity Funds cannot be allowed?" 2. The assessee is a corporate body created by an Act of Parliament called National Dairy Development Act, 1987. Assessee claims the status of a company as per the definition of company under the provisions of the Income Tax Act. The assessee does not have authorized, issued or paid up share capital. It has not been incorporated as a company under the Companies Act, 1956. The assessee has no shareholders either in the Government sector or in the banking/instituti....
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....he ITAT did not agree with the view expressed by CIT (Appeals) on the issue of status of the assessee as PFI. However, it held that conditions prescribed under section 36(1)(viii) were not complied by the assessee and held as such it would not be entitled to the deduction. Hence, this Appeal. RE: SUBSTANTIAL QUESTION OF LAW (E) : 4. This substantial question of law (E) is taken up at first for adjudication and it is being held that it would not arise, inasmuch as against the order of the Tribunal dated 08.08.2007, present appeal has been filed and during the pendency of the present appeal, assessee had filed a miscellaneous application before the ITAT in MA 214/AHD/2007, which came to be allowed vide order dated 28.08.2009, whereunder Tribunal has recalled its earlier order on this issue and remitted the matter to the Assessing Officer in ITA No.454/AHD/2006 on 21.04.2011 and as a result of the same, Assessing Officer undertook the exercise of redoing the assessment on this issue namely disallowance of Rs.10,31,34,920/- given to various cooperative societies which was claimed as deductible expenditure under Section 36(1)(xii) of the Income Tax Act, 1961 (for short 'the Act'),....
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....als) and ITAT have completely misunderstood the activity of "agricultural development" to "agricultural activity" which are separate, distinct and independent and have no bearing and would have no nexus while interpreting the eligible business as defined under clause (b) to Explanation of section 36(1)(viii). He would also submit that Tribunal has not given any finding on this issue at all though CIT (Appeals) has extensively dealt with and disagreed with the contention of the assessee by referring to the findings recorded by the CIT (Appeals) on the issue of interpretation of words "agricultural development" as defined in clause (b) for the purposes of assessee being declared as carrying on "eligible business". 6.2 He would submit that finding recorded by the CIT (Appeals) by referring to the propositions of law are citations relied upon are all relating to agricultural activity vis-a-vis with reference to section 10 of the Act which provides for exemption of agricultural income from the purview of Income-Tax Act, 1961 by virtue of Entry 46 in List 2 of Schedule VII of the Constitution of India and the businesses which are eligible or in other words to be construed as "specifie....
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....it flowing to the specified entities and as such, the authorities ought to have allowed the deduction even in the absence of the Share Capital of assessee not being there. On these grounds, he has prayed for answering the substantial questions of law No.(B), (C),(D) and (E) in favour of the assessee and against the Revenue. Per contra, Shri Varun Patel has supported the order of the Tribunal. 7. Now, coming down to substantial question of law No.(F), Mr. Bandish Soparkar, learned advocate appearing for the appellant assessee has submitted that conclusion arrived at by the authorities below and finding recorded in respect of contribution made to National Dairy Development Board Employees Group Gratuity Funds disallowed to the extent of Rs.5,61,56,408/- is concerned, is not only erroneous but also contrary to the provision itself. It has been submitted that it is not in dispute that no contribution has been made and further, it is also not in dispute that approval for the said Gratuity Fund Scheme, namely 'National Diary Development Board Employees Group -cum Life Insurance Scheme was already granted on 19.10.1972 and it was merely a deed of variation to the said scheme, which was....
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....resulted in a serious error committed by the original authority and successively, the authorities have committed an error. As a result of this, substantial question of law No.(F) deserves to be answered in favour of assessee. 7.2 Learned advocate Mr. Soparkar has drawn our attention to the finding which has been arrived at by the Appellate Tribunal in paragraphs 66 and 68 of the appellate order, which is impugned in the present appeal, and has contended that this breach by an authority is clearly in contrast to the provisions of the Act. Hence, he has prayed for answering the substantial question of law in favour of the assessee. 7.3 As against this, learned advocate Mr. Varun K. Patel appearing on behalf of revenue has vehemently contended that on the basis of material on record, concurrent finding of fact is arrived at by all the authorities below against the assessee in respect of substantial question No.(F). It has been contended that submission made on this issue by learned advocate for assessee is quite innocuous and not in conformity with the relevant provisions of the Act. On the contrary, authorities have clearly found that Gratuity Trust of the assessee which was ac....
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....advocate Mr. Patel has drawn our attention to the communications dated 23.9.2003, 1.4.2004, 12.4.2004 as well as 17.8.2004, to contend that it was not merely an intimation which was required to be given but it was a specific approval of an authority. As a result of this, authorities have rightly come to conclusion against the assessee. 7.5 Learned advocate Mr. Patel to strengthen his submission has made a reference to the decision delivered by Punjab & Haryana High Court almost on a similar issue, i.e. reported in 275 ITR 570 and by referring to paragraph 1, 8, 14 and 15 of said judgment has submitted that almost in similar situation, after analyzing the relevant provisions, High Court held that ordering deduction of such contribution was not justified and as such, view is taken against the assessee in respect of this issue. 7.6 Further it has been brought to the notice of this Court that by virtue of Section 40A (7)(a) and (b), stand taken by assessee is impermissible. He would further submit that a conjoint reading of said clause would clearly indicate that contribution must be towards an approval to gratuity fund and same having not been done, authorities have rightly disa....
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.... (iii) a banking company; (iv) a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank; (v) a housing finance company; and (vi) any other financial corporation including a public company; (b) "eligible business" means,- [(i) in respect of the specified entity referred to in subclause (i) or sub-clause (ii) or sub-clause (iii) or subclause (iv) of clause (a), the business of providing longterm finance for- (A) industrial or agricultural development; (B) development of infrastructure facility in India; or (C) development of housing in India;] (ii) in respect of the specified entity referred to in subclause (v) of clause (a), the business of providing longterm finance for the construction or purchase of houses in India for residential purposes; and (iii) in respect of the specified entity referred to in subclause (vi) of clause (a), the business of providing longterm finance for development of infrastructure facility in India; (c) to (h) xxxxxxx" RE : SUBSTANTIAL QUESTION OF LAW (....
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....to the words of the Statute, vide Partington v AG (1869) LR 4 HL 100 at page 122 - referred to in IRC versus Duke of Westminster - (1936) A.C. 1 P. 24 (HL). "In a Taxing Act, one has to look merely at what is clearly said. there is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." 13. In IRC versus Duke of Westminster, (1936) A.C. 1 p. 24 (HL), Lord Tomlin while refuting doctrine of "the substance of the matter", observed : "It is said that in revenue cases there is a doctrine that the Court may ignore the legal position and regard what is called 'the substance of the matter'. This supposed doctrine seems to rest for its support upon a misunderstanding of language used in some earlier cases. The sooner this misunderstanding is dispelled, and the supposed doctrine given its quietus, the better it will be for all concerned, for the doctrine seems to involve substituting 'the uncertain and crooked cord of discretion' for 'the golden and straight metwand of the law." 14. The Hon'ble Apex Court in the case of M/s Geo Mil....
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....e for construction or purchase of houses in India for residential purposes any amount not exceeding 40% of the total income." 18. The conditions precedent is, such assessee : - "(a) should create and maintain a special reserve; (b) aggregate of the amount carried to special reserve account from time to time exceeds twice the amount of the paid up share capital excluding the amounts capitalised from reserves and no allowance under said clause would be made in respect of such expenses." 19. Tribunal accepted the contention of assessee though negatived by Assessing Officer and CIT (Appeals) since the assesee had applied for status of Public Financial Institution on 10.07.2002 i.e. within the assessment year 2003-04 and by applying the principles laid down by the Hon'ble Apex Court in the case of Marshall Sons & Co. versus ITO. reported in (1996) 88 Taxman 619, held that it would relate back to the date of application. 20. The activity of dairy business cannot be construed as agricultural activity. At this juncture, it would be apt and appropriate to note the contention of the assessee which is to the effect that section 3(bb) of Industrial Act, defines an in....
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.... used for finding out meaning to be assigned to a term of common parlance used in an altogether different setting. And lastly, as Justice G.P. Singh points out in "Principles of Statutory Interpretation" (9th Edition, 2004, at page 163): "[I]t is hazardous to interpret a statute in accordance with a definition in another statute and more so when such statute is not dealing with any cognate subject or the statutes are not in pari materia." The same view has been taken in the decision of this court in CIT v. Benoy Kumar which we have extensively referred to earlier in this judgment." 22. In Jagatram Ahuja versus Commissioner of Gift Tax reported in AIR 2000 SC 3195, it has been held that Statutes which are not in para materia cannot be looked into. 23. It is trite law that exemption notification is to be read strictly and burden is on the assessee to prove that item falls within the four corners of such exemption notification. An exemption notification should be given a liberal meaning. Recourse to other principles or cannons of interpretation of Statute would be resorted to only in the event of the same giving rise to anomaly or absurdity. The exemption given....
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....the language and not to expand its scope deviating from its language. Thus, there is a vast difference and distinction between a charging provision in a fiscal statute and an exemption notification." 24. It is in the teeth of the above authoritative pronouncements of the Hon'ble Apex Court, the findings recorded by the Assessing Officer disallowing the contention that the dairy activity is covered within the definition of Industry necessarily has to be upheld by extracting the said finding. It reads : "9.5 Further to the above xxxxxxxxx. However, during the course of proceedings, it is claimed that Dairy activity is covered within the definition of Industry under clause 27 of First Schedule to Industrial Development Regulation Act. The claim of the assessee that it is engaged in providing long term finance for industrial development is considered based on its claim that dairy activity is covered within the definition of industry as per clause 27 of the first schedule of Industrial Development Regulation Act. However, on going through the aforesaid clause 27 of the First Schedule of IDR Act, it is seen that dairy industry is not covered within its ambit. Clause 27 classi....
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....ed a deduction of the amount of such expenditure incurred during the previous year. Whereas said provision pressed into service would not include or extend to the expression or phrase "Industrial or agricultural development" by taking within its sweep the dairy or animal husbandry activity. 26. In that view of the matter, contention raised by the appellant - assessee cannot be accepted. Hence, we are of the considered view that providing long term finance for industrial or agricultural development to various diary cooperations cannot be covered as long term finance extended for agricultural or industrial development. 27. In that view of the matter, substantial question of law formulated in B, C and D is answered in the affirmative i.e. against the appellant - assessee and in favour of revenue. RE : SUBSTANTIAL QUESTION OF LAW (F) : 28. The assessee claimed deduction of Rs. 5,61,56,408/- made on account of payment of gratuity. In the note attached to the computation of income at para 12, it was stated by the assessee before the Assessing Officer that a sum of Rs. 1,47,14,669/- was paid to the employees as gratuity during the year, whereas the net debit of Rs. 1,31,70,181....
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....m is actually paid by him. Now, in the context of this, a perusal of Section 40A(7) also deserves to be taken note of. It reads thus:- "(7) (a) Subject to the provisions of clause (b), no deduction shall be allowed 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 (a) shall apply in relation to any provision 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. Explanation. For the removal of doubts, it is hereby declared that where any provision made by the assessee for the payment of gratuity to his employees.cn their retirement or termination of their employment for any reason has been allowed as a deduction in computing the income of the assessee for any assessment year, any sum paid out of such provision by way of contribution towards an approved gratuity fund or by way of gratuity to any employee shall not....
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....erwise orders, be deemed to have been withdrawn from the date on which the alteration took effect. Liability of trustees on cessation of approval. 6. If a gratuity fund for any reason ceases to be an approved gratuity fund, the trustees of the fund shall nevertheless remain liable to tax on any gratuity paid to any employee. 7. Where any contributions by an employer (including the interest thereon, if any) are repaid to the employer, the amount so repaid shall be deemed for the purposes of income-tax to be the income of the employer of the previous year in which they are so repaid." 33. Section 8 of this Part-C has provided a remedial measure to an employer - assessee that in the event of concerned competent officer is refusing to accord approval to gratuity fund or order withdrawing such approval can file an appeal within 60 days, which reflects that it is an obligation on an assessee to seek approval to gratuity fund. Conjoint reading of this provision would clearly indicate that contribution shall have to be with approved gratuity fund created, as reflecting from subsection (7) of Section 40A and undisputedly, here, there was no approval of the sche....
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....mation is to be made in absence of any withdrawal of earlier approval, at this stage, we may state that for long period of 15 years, scheme remained inoperative, without continuance of approval and when we see communications which are sought to be relied upon clearly indicate that even assessee was also in clear understanding about the requirement of approval. In no uncertain terms, said communications dated 23.9.2003, 1.4.2004, 12.4.2004 and 17.8.2004 indicate that it is the appellant - assessee who submitted deed of variation on 23.9.2003 onwards and sought specific approval. Not only this communication dated 23.9.2003 but subsequent reminders also clearly suggest that what has been sought for is approval and as such, the assessee itself was conscious about the situation of seeking approval. As a result of this, a conjoint effect of sequence of events, as stated above, and in view of the literal meaning of relevant provisions, we are of the considered opinion that no error is committed by the authorities below in disallowing deduction sought for by the assessee and as such, we hereby answer the substantial question No.(F) in favour of the revenue. 37. At this stage, we remind ....