2023 (5) TMI 310

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....t and issuance of notice u/s 148 of the Act and hence, the assessment completed u/s 144 r.w.s. 147 of the Act making disallowance to the extent of Rs.89,632/- purely on change of opinion is bad in law, without jurisdiction, illegal and therefore, liable to be annulled in toto. 2. On the facts and in the circumstances of the case as well in law, the learned CIT (Appeals) erred in confirming the order of the of the ACIT, Valsad Circle, Valsad making disallowance of expenditure of Rs.89,632/- being the premium actually paid to LIC under the Group Gratuity-cum-Life Insurance Scheme u/s 36(l)(v) of the Act and hence, not justified. 3. On the facts and in the circumstances of the case and in law, both the lower authorities have grievously failed to consider in the right and proper perspectives the claim of expenditure of Rs.89,632/- being the premium actually paid to LIC under the Group Gratuity-cum-Life Insurance Scheme, fully allowable u/s 37(1) of the Act and therefore, the disallowance of premium expenditure under the misconstruction and misapplication of the provisions of 36(1)(v) of the Act is without jurisdiction, illegal bad in law and not justified. 4.....

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....ratuity fund". Further, section 36(1)(v) of the I.T. Act, 1961, provides that any sum paid by the assessee as an employer by way of contribution towards an approved gratuity allowed as a deduction. All these statutory provisions refer to an "approved gratuity fund". The approval referred to in the provisions is the approval of the Commissioner of Income Tax, which is required to be obtained in terms of the rules contained in part C of Fourth Schedule to the I.T. Act, 1961 which deals with 'approved gratuity fund'. Rule 4(1) of Part C of Fourth Schedule to the I.T. Act, 1961 provides for an application being made for approval. Rule 6 provides that if a gratuity fund for any reasons ceases to be an approved gratuity fund, the trustees of the fund shall, nevertheless, remain liable to tax and gratuity paid to any employee. The conditions of approval are set out in Rule 3. The approval is to be granted by the Chief Commissioner of Income Tax, who has been vested with that power under rule 2(1) of Part C of Fourth Schedule. Further, the assessee's claim of allowing the same under section 37 is not acceptable as when there is a specific provision for specific expenditure/expenses, the sp....

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....g Co-ordinate Bench of Ahmedabad in the case of DCIT v. Baroda Gujarat Gramin Bank [I.T. Appeal No. 1479/Ahd/2010 dated 6.8.2010] deduction claim was allowed on the ground that payment made to LIC is not a provision, but actual expenditure claimed under gratuity scheme. Since the assessee has claimed the expenditure same is therefore, liable to be allowed. We further observe that Hon'ble Gujarat High Court in the case of the assessee in its order dated 05.02.2018 in SCA No. 20801 of 2017 [copy filed PB-l2-to 19] in para 5 observed as: "In such objection, it was inter-alia pointed out that the gratuity scheme was being managed by LIC for which, an agreement was executed between the trustees of the fund and LIC on 31.03.1976. These documents were produced during the course of original assessment proceedings. The LIC accepted the responsibility to manage the fund only after verifying the Commissioner of Income-Tax duly approved that scheme. After examining of such aspects, the petitioners claim for deduction was accepted. It was also pointed out that this is not the first year in which, such claim was made and accepted. The bank has been paying premium under the said sche....

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....sition to make a categorical statement in that behalf. 8. Having considered the matter in the light of the background facts, we are of the opinion that there is no merit in the appeal. True that a fiscal statute is to be construed strictly and nothing should be added or subtracted to the language employed in the Section, yet a strict construction of a provision does not rule out the application of the principles of reasonable construction to give effect to the purpose and intention of any particular provision of the Act. See Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585/23 Taxman 37 (SC). From a bare reading of Section 36(1)(v) of the Act, it is manifest that the real intention behind the provision is that the employer should not have any control over the funds of the irrevocable trust created exclusively for the benefit of the employees. In the instant case, it is evident from the findings recorded by the Commissioner and affirmed by the Tribunal that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the assessee the said fund ultimately came back to the Tex....