M/s. Prakash Software Solution Pvt. Ltd., Baroda V. The Income Tax Officer, Ward-4(1), Baroda

ITA 1390/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8222 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 08-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: MEHUL K PATEL
• Section: 37(1); 12A; 12AA; 37; 12

Judgement Text

ITA NO. 1390/AHD/2014 M/S. PRAKASH SOFTWARE SOLUTION PVT LTD VS. ITO A.Y. 2010-11 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND MAHAVIR PRASAD JM] I.T.A. NO.1390/AHD/2014 ASSESSMENT YEAR: 2010-11 PRAKASH SOFTWARE SOLUTION PVT LTD .....APPELLANT INDUCHACHA HOUSE, OPP. CHHANI OCTROI NAKA BARODA 390 002 [PAN : AACCP 1776 D] VS. INCOME TAX OFFICER WARD 4 (1), BARODA .RESPONDENT APPEARANCES BY: MEHUL K PATEL FOR THE APPELLANT V K SINGH FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING: NOVEMBER 13, 2017 DATE OF PRONOUNCING THE ORDER: NOVEMBER 15, 2017 O R D E R PER PRAMOD KUMAR AM: 1. THIS APPEAL CHALLENGES ORDER DATED 14 TH FEBRUARY 2014, PASSED BY THE LEARNED CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 14 3(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2010-11, ON THE FOLLOWING G ROUNDS: - 1. THE LEARNED AO AND THE LEARNED CIT (APPEALS) H AVE ERRED IN DISALLOWING CONTRIBUTION TO GRATUITY FUND OF RS.5,63,235/- HOLD ING THAT THE GRATUITY FUND WAS NOT APPROVED ON THE DATE OF CONTRIBUTION, NOT A PPRECIATING THAT THE APPROVAL WAS IN PROCESS AND HENCE, THE CONTRIBUTION WAS ALLOWABLE AS A DEDUCTION. 2. WITHOUT PREJUDICE TO THE ABOVE AND IF IT IS HEL D THAT THE SAME IS NOT ALLOWABLE U/S 36(1)(V), IT IS RESPECTFULLY SUBMITTE D AND CLAIMED THAT THE SAME BE ALLOWED U/S 37 OF THE ACT AS BUSINESS EXPEN DITURE. 2. THE ISSUE IN APPEAL LIES IN A VERY NARROW COMPAS S OF MATERIAL FACTS. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD SET UP AN EMPLOYEES GRATUITY FUND, BY THE NAME OF PRAKASH SOFTWARE SOLUTIONS PVT LTD EMPLOYEE S GROUP GRATUITY SCHEME FOR ADMINISTERING A SCHEME, WHICH WAS NAMED AS PRAKASH SOFTWARE SOLUTIONS PVT LTD EMPLOYEES GROUP GRATUITY-CUM- LIFE ASSURANCE SCHEME , IN COLLABORATION WITH THE LIFE ITA NO. 1390/AHD/2014 M/S. PRAKASH SOFTWARE SOLUTION PVT LTD VS. ITO A.Y. 2010-11 PAGE 2 OF 7 INSURANCE CORPORATION OF INDIA. THIS TRUST WAS SET UP ON 1 ST JANUARY 2010 AND WAS EFFECTIVE FROM 1 ST JANUARY 2010. ON 03.03.2010, AN INITIAL PAYMENT O F RS.5,63,235, AS PREMIUM UNDER THIS SCHEME FOR THE PERIOD OF ONE YEA R COMMENCING FROM 1 ST JANUARY 2010, TO PENSION AND GROUP SCHEMES DEPARTMENT OF TH E LIFE INSURANCE CORPORATION OF INDIA. AS THE PAYMENT WAS MADE ON BEHALF OF THE GR ATUITY FUND, THIS PREMIUM PAID TO THE LIC WAS TREATED AS CONTRIBUTION TO THE SAID GRATUIT Y FUND. THE GRATUITY FUND HAD ALSO APPLIED, VIDE LETTER DATED 31 ST MARCH 2010, ON 07.04.2010, FOR APPROVAL OF THE SAI D FUND BY THE COMMISSIONER OF INCOME TAX UNDER RULE 2(1) O F PART C TO THE THIRD SCHEDULE TO THE INCOME-TAX ACT, 1961. IT WAS IN THIS BACKDROP A DEDUCTION OF RS.5,63,235 WAS MADE FOR CONTRIBUTION TOWARDS APPROVED GRATUITY FUND. H OWEVER, THIS CLAIM WAS DECLINED BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAS APPLIED FOR THE APPROVAL OF GRATUITY FUND, AFTER MAKING PAYMENT TO GRATUITY FUND AND THAT HENCE, AS PER PRO VI SIONS OF SECTION 36(1)(V), THE SAID CONTRIBUTION TO THE GRATUITY FUND IS NOT ELIGIBLE FOR DEDUCTION . THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE HAS NOT RECEIVED ANY APPROVAL FROM THE STATUTORY AUTHORITY FOR ITS GRATUITY FUND TILL DATE . AGGRIEVED BY DENIAL OF THIS DEDUCTION OF RS.5,95,48 5, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. LEARNED CIT(A), INTER ALIA, OBSERVED THAT AT THE TIME OF MAKING OF CONTRIBUTION, THE APPELLAN T HAD NOT FILED ANY APPLICATION FOR APPROVAL OF GRATUITY FUND, AND HENC E THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CORRECT . THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 4. IT IS IMPORTANT TO NOTE THAT IN THE MEANTIME, TH E COMMISSIONER OF INCOME TAX HAS GRANTED APPROVAL TO THE GRATUITY FUND, VIDE ORDER D ATED 11 TH FEBRUARY 2014, BUT THE APPROVAL IS GRANTED WITH EFFECT FROM 7 TH APRIL 2010, WHICH, AS IS EVIDENT FROM THE FACTS SE T OUT ABOVE, EFFECTIVE FROM THE DATE ON WHICH APPLICA TION WAS MADE FOR APPROVAL OF THE TRUST RATHER THAN THE DATE ON WHICH THE TRUST WAS CREATED. THE APPROVAL OF THE GRATUITY FUND SET UP BY THE ASSESSEE APPELLANT IS THUS NO LO NGER AN ISSUE; THE SHORT ISSUE FOR OUR CONSIDERATION, IN OUR CONSIDERED VIEW, IS THAT WHEN AN APPROVAL IS GRANTED EFFECTIVE SUBSEQUENT TO THE DATE OF SETTING UP OF A GRATUITY FUND, WHETHER THE EARLIER CONTRIBUTIONS MADE TO SUCH A TRUST CAN BE ALLOWED AS A DEDUCTION, OR WHETHER, AS WE PUT IT TO THE PARTIES DURING THE COURSE OF HEARING, IT IS AT ALL OPEN TO THE COMMISSIONER TO RESTRICT THE APPROVAL, ON THE FACTS OF THIS CASE, AS EFFECTIVE F ROM A DATE LATER THAN THE DATE ON WHICH THE TRUST WAS ACTUALLY SET UP AND COMMENCED ITS OPE RATIONS. LEARNED COUNSEL HAS AN ALTERNATIVE PLEA AS WELL. HE SUBMITS THAT SINCE THE EXPENDITURE INCURRED IS ADMITTEDLY IN THE COURSE OF, AND IN LEGITIMATE FURTHERANCE OF ITS LEGITIMATE BUSINESS INTERESTS, AND IS NOT EXPRESSED FORBIDDEN BY ANY LAW, IT SHOULD BE AL LOWED AS A DEDUCTION UNDER SECTION 37. LEARNED DEPARTMENTAL REPRESENTATIVE, OF COURSE, HAS A VERY DIFFERENT WAY OF LOOKING AT THINGS. HE FIRMLY BELIEVES, AND THATS WHAT HE E MPHATICALLY ARGUES BEFORE US, IS THAT ALL THAT IS REQUIRED TO BE SEEN IS THE SITUATION PR EVAILING AS ON THE POINT OF TIME WHEN ASSESSEE MADE THE CONTRIBUTION TO THE FUND, AND SIN CE, BEYOND ANY DISPUTE OR CONTROVERSY, THAT CONTRIBUTION WAS MADE TO A GRATUI TY FUND, WHICH WAS NOT APPROVED AT THE RELEVANT POINT OF TIME, THE ASSESSEE WAS CLEARL Y HIT BY THE DISABLING PROVISIONS UNDER SECTION 36(1)(V) WHICH CATEGORICALLY PROVIDES THAT ONLY SUCH CONTRIBUTION TO THE APPROVED GRATUITY FUNDS, CREATED BY THE ASSESSEE FOR THE EXC LUSIVE BENEFITS OF ITS EMPLOYEES, ARE PERMISSIBLE AS DEDUCTION AS ARE APPROVED. ONCE IT I S NOT IN DISPUTE THAT THE GRATUITY FUND ITA NO. 1390/AHD/2014 M/S. PRAKASH SOFTWARE SOLUTION PVT LTD VS. ITO A.Y. 2010-11 PAGE 3 OF 7 IN QUESTION WAS NOT AN APPROVED GRATUITY FUND AT TH E RELEVANT POINT OF TIME, ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, IT IS END OF THE ROAD SO FAR AS DEDUCTIBILITY OF THE CONTRIBUTION TO SUCH A GRATUITY FUND IS CONCERN ED. THE LAW, ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, IS UNAMBIGUOUS, CLEAR AND DOES NOT NEED ANY CREATIVE INTERPRETATION CONTRARY TO THE PLAIN WORDS OF THE L AW. 5. SO FAR AS THE CONTRIBUTION TO THE APPROVED GRATU ITY FUNDS ARE CONCERNED, SECTION 36(1)(V) CATEGORICALLY PROVIDES THAT, IN COMPUTATIO N OF PROFITS AND GAINS FROM BUSINESS AND PROFESSION, DEDUCTION SHALL BE ALLOWED IN RESPE CT OF ANY SUM PAID BY THE ASSESSEE, AS AN EMPLOYER, BY WAY OF CONTRIBUTION TO WARDS AN APPROVED GRATUITY FUND CREATED BY HIM FOR THE EXCLUSIVE BENEFIT OF HI S EMPLOYEES UNDER AN IRREVOCABLE TRUST . SECTION 2(5) DEFINES APPROVED GRATUITY FUND A S A GRATUITY FUND WHICH HAS BEEN, AND CONTINUES TO BE, APPROVED BY TH E PRINCIPAL CHIEF COMMISSIONER, CHIEF COMMISSIONER, PRINCIPAL COMMISS IONER OR COMMISSIONER OF INCOME TAX IN ACCORDANCE WITH THE RULES CONTAINED I N PART C OF THIRD SCHEDULE TO THE INCOME TAX ACT . RULE 3 OF PART C OF THIRD SCHEDULE DEALS WITH TH E CONDITIONS FOR THE APPROVAL, WHICH, FOR READY REFERENCE, ARE REPRO DUCED BELOW: CONDITIONS FOR APPROVAL. 3. IN ORDER THAT A GRATUITY FUND MAY RECEIVE AND RE TAIN APPROVAL, IT SHALL SATISFY THE CONDITIONS SET OUT BELOW AND ANY OTHER CONDITIONS WHICH THE BOARD MAY, BY RULES, PRESCRIBE (A) THE FUND SHALL BE A FUND ESTABLISHED UNDER AN IRREVOCABLE TRUST IN CONNECTION WITH A TRADE OR UNDERTAKING CARRIED ON I N INDIA, AND NOT LESS THAN NINETY PER CENT OF THE EMPLOYEES SHALL BE EMPL OYED IN INDIA ; (B) THE FUND SHALL HAVE FOR ITS SOLE PURPOSE THE P ROVISION OF A GRATUITY TO EMPLOYEES IN THE TRADE OR UNDERTAKING ON THEIR RETI REMENT AT OR AFTER A SPECIFIED AGE OR ON THEIR BECOMING INCAPACITATED PR IOR TO SUCH RETIREMENT OR ON TERMINATION OF THEIR EMPLOYMENT AFTER A MINIM UM PERIOD OF SERVICE SPECIFIED IN THE RULES OF THE FUND OR TO THE WIDOWS , CHILDREN OR DEPENDANTS OF SUCH EMPLOYEES ON THEIR DEATH; (C) THE EMPLOYER IN THE TRADE OR UNDERTAKING SHALL BE A CONTRIBUTOR TO THE FUND ; AND (D) ALL BENEFITS GRANTED BY THE FUND SHALL BE PAYA BLE ONLY IN INDIA. 6. THERE IS NO DISPUTE THAT THESE CONDITIONS ARE SA TISFIED IN THE PRESENT CASE, AND THAT IS THE REASON AS TO WHY THE APPROVAL IS GRANTE D BY THE COMMISSIONER. THE DISPUTE IS CONFINED TO THE QUESTION AS TO THE DATE FROM WHI CH THE APPROVAL MUST BE DEEMED TO HAVE TAKEN EFFECT. NO DOUBT, RULE 2(2) PROVIDES THA T THE COMMISSIONER SHALL COMMUNICATE, IN WRITING TO THE TRUSTEES OF THE FUND THE GRANT OF SUCH APPROVAL WITH THE DATE FROM WHICH THE APPROVAL IS TO TAKE EF FECT AND WHERE THE APPROVAL IS GRANTED SUBJECT TO CONDITIONS, THOSE CONDITIONS . WHILE THESE PROVISIONS DO NOT OFFER ANY GUIDANCE ABOUT THE DATE FROM WHICH THE APPROVAL IS TO BE GRANTED, THERE IS SOME HINT ABOUT THE GUIDING PRINCIPLES GOVERNING THE DAT E FROM WHICH THE WITHDRAWAL OF APPROVAL IS TO TAKE EFFECT UNDER RULE 4(2) BY SPECI FICALLY PROVIDING THAT IF ANY ALTERATION ITA NO. 1390/AHD/2014 M/S. PRAKASH SOFTWARE SOLUTION PVT LTD VS. ITO A.Y. 2010-11 PAGE 4 OF 7 IN THE RULES, CONSTITUTION, OBJECTS OR CONDITIONS O F THE FUND IS MADE AT ANY POINT OF TIME AFTER THE DATE OF APPLICATION FOR APPROVAL.. ANY APPROVAL GIVEN SHALL , UNLESS THE PRINCIPAL CHIEF COMMISSIONER, CHIEF COMM ISSIONER, PRINCIPAL COMMISSIONER OR COMMISSIONER OTHERWISE ORDERS, BE D EEMED TO HAVE BEEN WITHDRAWN FROM THE DATE ON WHICH THE ALTERATION TOO K EFFECT . QUITE CLEARLY, IT IS THE POINT OF TIME WHEN CONTENT OF THE RULES, CONSTITUT ION, OBJECTS OR CONDITIONS OF THE FUND, OR ALTERATION THERETO, ARE MADE WHICH IS RELEVANT FOR THE PURPOSE OF WITHDRAWING, AND AS A COROLLARY THERETO, GRANTING THE APPROVAL TO THE GRA TUITY FUND. THAT APPROACH IS QUITE JUSTIFIED ON THE FIRST PRINCIPLES AS WELL. IT CANNO T EVEN BE SERIOUSLY ARGUED BY ANYONE THAT UNDERLYING PRINCIPLES FOR WITHDRAWAL OF VIS--VIS G RANT OF APPROVAL CAN BE DIFFERENT. THE THRUST AND THE UNDERLYING PRINCIPLE ON WHICH THE DA TE OF APPROVAL OF THE TRUST AND THE WITHDRAWAL OF SUCH AN APPROVAL IS BASED IS THUS CLE AR, UNAMBIGUOUS AND BEYOND CONTROVERSY. THE POWERS VESTED IN THE COMMISSIONER OF COMMUNICATING THE DATE IN WHICH THE APPROVAL IS TO TAKE EFFECT, UNDER RULE 2 (2) OF PART C OF THIRD SCHEDULE TO THE INCOME TAX ACT, ARE REQUIRED TO BE VIEWED IN THIS C ONTEXT. SUCH A POWER CAN RATIONALLY BE EXERCISED ONLY WITH REFERENCE TO THE DATE ON WHI CH THE FUND WAS CREATED OR ON WHICH THE ALTERATION IN THE RULES, CONSTITUTION, OBJECTS OR CONDITIONS OF THE FUND WAS MADE SO AS TO BRING THE SAME IN CONFORMITY WITH THE REQUIREMEN TS OF RULE 3 SET OUT EARLIER IN THIS ORDER. LEARNED DEPARTMENTAL REPRESENTATIVES SUGGES TION THAT IT IS EXCLUSIVE DOMAIN OF DISCRETION OF THE COMMISSIONER TO SET OUT THE DATE FROM WHICH APPROVAL IS TO TAKE EFFECT, ON SUCH REASONABLE BASIS AS HE DEEMS FIT, IS NOT S USTAINABLE IN LAW IN THE LIGHT OF WELL SETTLED LEGAL POSITION THAT WHEN A PUBLIC AUTHORITY HAS THE POWERS TO DO SOMETHING, HE HAS A CORRESPONDING DUTY TO EXERCISE SUCH POWERS WH EN CIRCUMSTANCES SO JUSTIFY OR WARRANT. THERE IS NO DISPUTE THAT THE COMMISSIONER HAS THE POWERS TO DECIDE THE DATE FROM WHICH THE APPROVAL IS TO TAKE EFFECT. AS A COR OLLARY TO THIS POWER, THE COMMISSIONER HAS THE DUTY TO DO EXERCISE THIS POWER AS THE CIRCU MSTANCES SO JUSTIFY AND WARRANT, BY MAKING ELIGIBLE FOR DEDUCTION OF CONTRIBUTION TO A GRATUITY FUND SET UP IN ACCORDANCE WITH THE REQUIREMENTS OF PART C OF THIRD SCHEDULE TO THE INCOME TAX ACT, AND TO PREVENT UNJUSTIFIED HARDSHIP TO THE ASSESSEE. AS OBSERVED B Y A COORDINATE BENCH IN THE CASE OF SABNIS ASHOK ANANT VS ACIT [(2008) 117 TTJ 96 (PUNE )], AN ASSESSING OFFICER, AS INDEED ANY OTHER AUTHORITY IN THE INCOME TAX ACT, CANNOT T URN TO THE ASSESSEE AND SAY THAT ALTHOUGH HE HAS AUTHORITY TO DO SOMETHING FOR THE GOOD OF THE ASSESSEE, IT IS NOT NECESSARY THAT HE MUST EXERCISE THAT AUTH ORITY . ONCE A STATUTORY AUTHORITY HAS THE POWER TO DO SOMETHING FOR A PUBLIC GOOD AND WHEN CIRCUMSTANCES SO JUSTIFY AND WARRANT, HE HAS TO ESSENTIALLY EXERCISE SUCH POWERS IN ACCORDANCE WITH THE SCHEME OF LAW. THE STATUTORY POWERS ARE EXERCISED ON THE BASI S OF SOUND CONCEPTUAL JUSTIFICATIONS AND NOT WHIMS OR FANCIES. 7. HAVING OBSERVED SO, WE MAY ALSO MENTION THAT QUI TE INTERESTINGLY, UNDER RULE 8(1), WHILE THE TRUSTEES MAY APPEAL AGAINST THE APP ROVAL BEING DECLINED OR APPROVED BEING WITHDRAWN, THERE IS NO APPELLATE REMEDY AGAIN ST THE DATE FROM WHICH THE APPROVAL IS TO TAKE EFFECT, EVEN THOUGH, AS EVIDENT FROM THE FACTS OF THIS CASE, SERIOUS PREJUDICE MAY BE CAUSED TO THE ASSESSEE EMPLOYER ON ACCOUNT O F GRANT OF APPROVAL WITH EFFECT FROM A DATE LATER THAN THE DATE ON WHICH THE TRUST IS CREATED. TO QUOTE THE OFT QUOTED WORDS OF LORD JUSTICE DENNING IN THE CASE OF SEAFORD COURT ESTATES LTD. VS. ASHER (1949) 2 ALL ER 155 AT P. 164 : '...... WHEN A DEFECT APPEARS, A JUDGE CANNOT SIMPLY FOLD HIS HANDS AND BLAME THE DRAFTSMANSHIP. HE MUST SET OUT TO WORK ON THE CONSTRUCTIVE TASK OF FINDING THE INTENTION OF PARLI AMENT..... AND THEN HE MUST ITA NO. 1390/AHD/2014 M/S. PRAKASH SOFTWARE SOLUTION PVT LTD VS. ITO A.Y. 2010-11 PAGE 5 OF 7 SUPPLEMENT THE WRITTEN WORD SO AS TO GIVE 'FORCE AN D LIFE' TO THE INTENT OF LEGISLATURE...... A JUDGE SHOULD ASK HIMSELF THE QU ESTION HOW, IF THE MAKERS OF THE ACT HAD THEMSELVES CAME ACROSS THIS RUCK IN THE TEX TURE OF IT THEY WOULD HAVE STRAIGHTENED IT OUT? HE MUST DO AS THEY WOULD HAVE DONE. A JUDGE MUST NOT ALTER THE MATERIAL OF WHICH THE ACT IS WOVEN, BUT HE CAN AND SHOULD IRON OUT THE CREASES .' IN MANY CASES, EMBARKING UPON SUCH A VOYAGE TO DISCOVER THE LEGISLATIVE INTENT MAY NOT REALLY BE WORKABLE FOR A VARIETY OF REASONS BUT GIVEN THE FACT THAT IT IS A NON-APPEALABLE DECISION OF THE COMMISSIONER AND IT IS NOT ONLY CONTRARY TO THE SCHEME OF THE ACT BUT IS CAUSING WHOLLY UNJUST PREJUDICE T O THE TAXPAYER, WE HAVE, ON THESE FACTS, NO HESITATION IN HOLDING THAT THE DATE ON WH ICH APPROVAL IS TO TAKE EFFECT CAN ONLY BE THE DATE ON WHICH FUND IS CREATED OR THE DATE ON WHICH THE TERMS OF FUNDS ARE ALTERED TO MEET THE REQUIREMENTS OF RULE 3- WHICH DOES NOT APPLY TO THIS FACT SITUATION. ONE CAN UNDERSTAND THAT SUCH A DENIAL OF DEDUCTION FOR CON TRIBUTION TO THE GRATUITY FUND TO THE EMPLOYER ASSESSEE IS INEVITABLE, AND IS ON ACCOUNT OF THE LAPSES OF TRUSTEES, WHEN TERMS AND CONDITIONS OF THE GRATUITY FUND ARE ALTER ED, TO MEET THE REQUIREMENTS OF PART C TO THIRD SCHEDULE TO THE INCOME TAX ACT, AND SUCH S ITUATION FULLY JUSTIFY THE APPROVAL BEING GRANTED EFFECTIVE FROM THE DATE ON WHICH THE CONDITIONS ARE SO ALTERED. IN OUR HUMBLE UNDERSTANDING, IT IS MAINLY THIS EVENTUALITY WHICH JUSTIFIES THE DATE OF APPROVAL BEING LATER THAN THE DATE ON WHICH THE FUND IS CREA TED. IN A SITUATION IN WHICH THE TERMS AND CONDITIONS OF THE FUND, ESTABLISHED UNDER THE I RREVOCABLE TRUST, ARE THE SAME AS THE TERMS AND CONDITIONS ON THE BASIS OF WHICH SUCH A F UND WAS SET UP, THERE CANNOT BE, IN OUR HUMBLE UNDERSTANDING, ANY JUSTIFICATION FOR THE EFFECTIVE DATE OF APPROVAL BEING A DATE LATER THAN THE DATE ON WHICH THE SAID FUND WAS SET UP. IN ANY CASE, NO SUCH JUSTIFICATION HAS BEEN SET OUT IN THE ORDER NOR MAD E OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. 8. AS FOR THE CONTENTION THAT IT IS THE DATE OF APP LICATION WHICH IS THE ONLY RELEVANT DATE FOR GIVING EFFECT TO THE APPROVAL, SUCH A CONT ENTION IS ONLY FIT TO BE NOTED AND REJECTED. INHERENTLY, AN APPROVAL FOR A FUND WHICH IS ALREADY SET UP IS IN THE NATURE OF POST FACTO APPROVAL AND IT RELATES BACK TO THE DATE ON WHICH IT IS SET UP IN ACCORDANCE WITH THE SCHEME OF THE LAW. THIS LEGAL POSITION IS ACCEPTED UNDER THE SCHEME OF THE INCOME TAX ACT ITSELF ADEQUATE DEMONSTRATES IT. IT IS IN THIS CONTEXT THAT WE MAY TAKE NOTE OF THE FIRST PROVISO TO SECTION 12AA(2) WHICH IS AS FOLLOWS: (2) WHERE AN APPLICATION HAS BEEN MADE ON OR AFTER THE 1ST DAY OF JUNE, 2007, THE PROVISIONS OF SECTIONS 11 AND 12 SHALL APPLY IN RELATION TO THE INCOME OF SUCH TRUST OR INSTITUTION FROM THE ASSESSMENT YEAR IMMED IATELY FOLLOWING THE FINANCIAL YEAR IN WHICH SUCH APPLICATION IS MADE: PROVIDED THAT WHERE REGISTRATION HAS BEEN GRANTED T O THE TRUST OR INSTITUTION UNDER SECTION 12AA, THEN, THE PROVISIONS OF SECTION S 11 AND 12 SHALL APPLY IN RESPECT OF ANY INCOME DERIVED FROM PROPERTY HELD UNDER TRUST OF ANY ASSESSMENT YEAR PRECEDING THE AFORESAID ASSESSMENT YEAR, FOR WHICH ASSESSMENT PROCEEDINGS ARE PENDING BEFORE THE ASSES SING OFFICER AS ON THE DATE OF SUCH REGISTRATION AND THE OBJECTS AND A CTIVITIES OF SUCH TRUST OR INSTITUTION REMAIN THE SAME FOR SUCH PRECEDING ASSE SSMENT YEAR: ITA NO. 1390/AHD/2014 M/S. PRAKASH SOFTWARE SOLUTION PVT LTD VS. ITO A.Y. 2010-11 PAGE 6 OF 7 9. CLEARLY, THE GRANT OF APPROVAL UNDER SECTION 12A A NOT ONLY APPLIES TO THE CURRENT ASSESSMENT YEAR BUT ALSO IN RESPECT OF PRECEDING AS SESSMENT YEARS, IN RESPECT OF WHICH ASSESSMENT PROCEEDINGS ARE PENDING, AS LONG AS THE MATERIAL FACTORS QUALIFYING FOR SUCH REGISTRATION REMAIN THE SAME FOR SUCH PRECEDING ASS ESSMENT YEAR. UNDOUBTEDLY, THE PROVISIONS OF SECTION 12AA HAVE NO APPLICATION IN T HIS CASE, BUT WHAT IS RELEVANT IS THE APPROACH ADOPTED BY THE STATUTE ITSELF WHICH IS CON TRARY TO THE STAND OF THE DEPARTMENTAL REPRESENTATIVE. THAT IS ALSO THE APPROACH ADOPTED B Y A SERIES OF BINDING JUDICIAL PRECEDENTS GRANTING DEDUCTION ON THE BASIS OF APPRO VALS GRANTED SUBSEQUENT TO THE CLAIM BEING MADE. AS A MATTER OF FACT, THIS ASPECT OF THE MATTER IS BY AND LARGE WELL SETTLED IN LAW, AND, THERE ARE A LARGE NUMBER OF JU DICIAL PRECEDENTS, IN FAVOUR OF THE ASSESSEE, ON THIS POINT. IN THE CASE OF CIT VS JAIPUR GRAMEEN BANK [(2016) 388 ITR 228 (RAJ)] , FOR EXAMPLE, HONBLE RAJASTHAN HIGH COURT HAS OBS ERVED THAT ONCE THE ASSESSEE FULFILS THE CONDITION LAID DOWN FOR APPROV AL HAVING CREATED A TRUST WITH LIFE INSURANCE CORPORATION OF INDIA, AND IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT DEPOSITED MONEY IN TERMS OF CREAT ION OF THE TRUST, THEREFORE, IN OUR VIEW OF THE TRIBUNAL ON SUCH FACTS IS WELL JUST IFIED IN HOLDING THAT THE CLAIM IS JUST, PROPER AND ALLOWABLE. A JUST AND REASONABLE C LAIM IS TO BE ALLOWED . IN EFFECT THUS THE PAYMENT ON A DATE PRIOR TO THE DATE OF APP ROVAL DOES NOT COME IN THE WAY OF DEDUCTION BEING ALLOWED. AS A MATTER OF FACT, EVEN GOING BY THE APPROVAL ITSELF, THE DATE FROM WHICH THE APPROVAL IS EFFECTIVE IS PRIOR TO TH E DATE OF APPROVAL. THE ARGUMENT OF THE LEARNED DEPARTMENTAL REPRESENTATIVE IS THIS CONTRAR Y TO THE STAND TAKEN IN THE APPROVAL ITSELF. 10. FOR THE DETAILED REASONS SET OUT ABOVE, WE ARE OF THE CONSIDERED VIEW THAT NOTWITHSTANDING THE EFFECTIVE DATE OF APPROVAL SET OUT BY THE COMMISSIONER IN HIS APPROVAL ORDER, THE APPROVAL GRANTED TO THE EMPLOYE ES GRATUITY TRUST MUST BE TREATED AS EFFECTIVE FROM 1 ST JANUARY 2010, AND, ON THAT BASIS, THE CONTRIBUTION MADE BY THE ASSESSEE TO THE SAID TRUST MUST BE HELD TO BE ADMIS SIBLE AS DEDUCTION UNDER SECTION 36(1)(V). THE ASSESSEE THUS SUCCEEDS IN THE APPEAL. AS WE HAVE DECIDED THE APPEAL ON THIS SHORT ISSUE, THE OTHER ISSUES RAISED BY THE AS SESSEE ARE WHOLLY ACADEMIC AND DO NOT CALL FOR OUR ADJUDICATION. WE MAY, HOWEVER, ADD THAT THE ALTERNATE PLEA OF THE LEARNED COUNSEL WHICH WAS SO EMPHATICALLY ARGUED BE FORE US, IS ANYWAY ONLY FIT TO BE NOTED AND REJECTED SINCE, AS CLEARLY PROVIDED BY SE CTION 37(1) ITSELF, ONLY SUCH EXPENSES CAN BE CONSIDERED FOR DEDUCTION UNDER SECT ION 37(1) WHICH ARE NOT EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36. ONCE THE PROVISIONS OF CONTRIBUTION TO GRATUITY FUND ARE SPECIFICALLY COVE RED BY SECTION 36(1)(V), AS IS THE ADMITTED POSITION ON THE FACTS OF THE CASE, SECTION 37(1) CAN OBVIOUSLY NOT HAVE ANY APPLICATION. 11. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TER MS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH OF NOVEMBER, 2017. SD/- SD/- MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 15 TH DAY OF NOVEMBER, 2017 **BT* ITA NO. 1390/AHD/2014 M/S. PRAKASH SOFTWARE SOLUTION PVT LTD VS. ITO A.Y. 2010-11 PAGE 7 OF 7 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF TAKING DICTATION: ... .TWO PAGES MANUSCRIPT OF HONBLE AM ARE ATTACHED WI TH THIS CASE FILE ...- 13.11.2017...................... 2. DATE OF TYPING & DRAFT ORDER PLACED BEFORE THE DI CTATING MEMBER: .15.11.2017....................... .. 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S.: .... 15.11.2017... 4. DT. ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT: 15.11.2017.... .......... 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: . .. 16.11.2017........................ 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: ..... 7. THE DT. ON WHICH THE FILE GOES TO THE ASTT. REGISTR AR FOR SIGNATURE ON THE ORDER: .................. ....... 8. DATE OF DESPATCH OF THE ORDER: ................. ........