ACIT, CHENNAI V. Tyco Sanmar Ltd., CHENNAI

ITA 1551/CHNY/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7167 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 05-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Retrospective amendment; Question of law
• Section: 43B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 1551/MDS/2014 ( / ASSESSMENT YEAR: 2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(2), NEW BLOCK 4 TH FLOOR, 121, MG ROAD, CHENNAI-600 034. VS M/S. TYCO SANMAR LTD., 9, CATHEDRAL ROAD, CHENNAI-600 086. PAN: AAACT7409H ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. A.V. SREEKANTH, JCIT /RESPONDENT BY : MR. SAROJ KUMAR PARIDA, ADVOCATE / DATE OF HEARING : 2 ND DECEMBER, 2014 /DATE OF PRONOUNCEMENT : 12 TH DECEMBER, 2014 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENN AI DATED 22.01.2014 FOR THE ASSESSMENT YEAR 2007-08. T HE ONLY GRIEVANCE OF THE REVENUE IN THIS APPEAL IS THAT COM MISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE DISAL LOWANCE OF PROVISION FOR GRATUITY MADE UNDER SECTION 43B OF TH E ACT. 2. THE ASSESSING OFFICER WHILE COMPLETING THE ASSES SMENT FOUND THAT ASSESSEE MADE PROVISION FOR GRATUITY OF 2 ITA NO.1551/MDS/2014 ` 32,54,120/- AND THIS WAS NOT ADDED BACK WHILE COMPU TING TAXABLE INCOME IN ITS COMPUTATION. THE ASSESSING O FFICER REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THIS PRO VISION MADE FOR GRATUITY SHOULD NOT BE DISALLOWED. THE ASS ESSEE CONTENDED THAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08, IT MADE PROVISION TOWARDS GRATUITY WITH LIC OF INDIA WHICH WAS APPROVED BY THE COMMISS IONER OF INCOME TAX . THE ASSESSEE SUBMITTED THAT THE SAID A MOUNT IS ALLOWABLE AS DEDUCTION AS PER PROVISIONS OF SECTION 40A(7)(B) OF THE ACT. IT WAS THE SUBMISSION OF THE ASSESSEE THAT CLAIM SHOULD BE ALLOWED UNDER THE PROVISIONS OF SECTION 4 0A(7)(B) WHICH IS A SPECIFIC PROVISION AND HENCE THE SAME OV ERRIDES SECTION 43B OF THE ACT, AS SECTION 43B IS ONLY GEN ERAL PROVISION. THE ASSESSING OFFICER REJECTED THE CONT ENTIONS OF THE ASSESSEE AND DISALLOWED THE PROVISION FOR GRATU ITY HOLDING THAT UNLESS THE SAID PROVISION IS PAID, IT IS NOT A LLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 43B OF THE ACT. O N APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED TH E CLAIM OF THE ASSESSEE AND DELETED THE DISALLOWANCE OBSERV ING THAT SIMILAR ISSUE HAS BEEN ALLOWED IN ASSESSEES OWN CA SE FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07. 3 ITA NO.1551/MDS/2014 3. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING THE P ROVISION FOR GRATUITY SUBMITTING THAT SINCE THE SAID AMOUNT IS O NLY A PROVISION AND NOT PAID IS HIT BY THE PROVISIONS OF SECTION 43B OF THE ACT. 4. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). HE FURTHER SU BMITS THAT THE REVENUE IN EARLIER YEARS ACCEPTED THE DECI SION OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E PROVISION FOR GRATUITY FOR THE ASSESSMENT YEARS 200 5-06 AND 2006-07 AND NO FURTHER APPEAL WAS FILED BY THE REVE NUE ON SIMILAR ISSUE. COUNSEL RELIED ON THE FOLLOWING DECI SIONS IN SUPPORT OF HIS CONTENTIONS THAT PROVISION MADE FOR APPROVED GRATUITY FUND IS ALLOWABLE AS DEDUCTION UNDER SECTI ON 40A(7)(B) OF THE ACT AND SUCH PROVISION FOR GRATUIT Y IS NOT HIT BY THE PROVISIONS OF SECTION 43B OF THE ACT:- I) CIT VS. BECHTEL INDIA (P) LTD. (2 DTR (DEL) 145) II) CIT VS. COMMON WEALTH TRUST (P) LTD & ANR (269 ITR 290)(KER) (III) CIT VS. EASWARAN & SONS ENGINEERS LTD.[TAX APPEAL NO.596 OF 2005 DATED 26.09.2011(MADRAS) 4 ITA NO.1551/MDS/2014 (IV) MEWAR SUGA MILLS LTD. VS.DCIT (THIRD MEMBER) ( 65 ITD 163)(JAIPUR BENCH) 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THE ASSESSEE DURING T HE RELEVANT ASSESSMENT YEAR 2007-08 CREATED PROVISION OF ` 32,54,120/- TOWARDS GRATUITY WITH LIC OF INDIA. THI S FUND WAS APPROVED BY THE COMMISSIONER OF INCOME TAX. THE ASSESSING OFFICER DISALLOWED THE SAID PROVISION FOR GRATUITY FOR THE REASON THAT ASSESSEE DID NOT PAY THE SAID G RATUITY DURING THE ASSESSMENT YEAR 2007-08. THE ASSESSING O FFICER WAS OF THE VIEW THAT SINCE THE ASSESSEE HAS MADE ON LY A PROVISION THE SAME IS NOT ALLOWABLE IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 43B OF THE ACT. THE COMMISSI ONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE FOLLO WING THE ORDERS PASSED IN ASSESSEES OWN CASE FOR THE ASSESS MENT YEARS 2005-06 & 2006-07 BY ORDERS DATED 01.12.2011 & 01.02.2013 RESPECTIVELY. IT WAS THE SUBMISSION OF THE COUNSEL THAT NO FURTHER APPEAL WAS PREFERRED BY THE REVENUE AND THE ORDER OF THE COMMISSIONER OF INCOME TAX (AP PEALS) WAS ACCEPTED. ON A PERUSAL OF THE DECISIONS RELIED ON BY THE ASSESSE, WE FIND THAT THIS ISSUE HAS BEEN CONSIDERE D BY 5 ITA NO.1551/MDS/2014 VARIOUS HIGH COURTS AND HELD THAT THE PROVISION MA DE BY THE ASSESSEE TOWARDS CONTRIBUTION TO APPROVED GRATUITY FUND IS AN ASCERTAINED LIABILITY AND IS ALLOWABLE AS DEDUCTION UNDER SECTION 40A(7)(B)OF THE ACT. IT WAS FURTHER HELD TH AT THE PROVISIONS OF SECTION 40A(7)(B) OVERRIDES SECTION 43B OF THE ACT. SIMILAR VIEW WAS ALSO TAKEN BY THE THIRD MEMBE R OF JAIPUR BENCH OF THIS TRIBUNAL IN THE CASE OF MEWAR SUGAR MILLS LTD. VS. DCIT (SUPRA). 6. THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. COMMON WEALTH TRUST (P) LTD & ANR. (SUPRA) HELD AS UNDER:- SECTION 40A(7) OF THE INCOME-TAX ACT, 1961, WAS INTRODUCED BY THE FINANCE A C T, 1975, WITH RETROSPECTIVE EFFECT FROM APRIL 1, 1973, AND SECTION 43B WAS INTRODUCED BY THE FINANCE ACT, 1983, WITH EFFECT FROM APRIL 1, 1984. S E CTION 4 0A SAYS THAT THE PROVISIONS OF THIS SECTION SHALL HAVE EFFECT NOTWITHSTAND I NG A N YTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISION OF THE ACT RE LAT I N G TO T H E COMPUTATION OF INCOME UNDER THE HEAD 'PROFITS AND G AINS OF BU SINE S S O R P ROFESS I ON' . SIMILARLY, SECTION 43B OPENS W I TH A NON OBSTANTE C L A US E. S ECTI ON 40A(7) PROVIDES THAT IN CASES COVERED B Y THE PROVISIONS OF C LAUS E (A) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF A N Y PROVISION WHETHER CA LL E D A S SUCH OR BY ANY OTHER NAME MADE BY THE ASSESSEE FOR THE PAYMENT OF G RATUITY OF HIS EMPLOYEES ON THEIR RETIREMENT OR ON T ERMINATION OF THEIR EMPLOYM E NT FOR ANY REASON . HOWEVER, CLAUSE (B) OF SECTION 40A(7) CLEARLY PROVI DES THAT TO ANY PROVISION MADE BY THE ASSESSEE FOR T HE PURPOSE OF PAYM E N T O F A SUM BY WAY. OF ANY CONTRIBUTION TOWARDS A N APPROVED GRATUITY FU ND , O R F OR THE PURPOSE OF PAYMENT OF ANY GRATUITY, TH AT HAS BECOME PAYABLE DU R ING T H E PRE VIOUS Y EAR CLAUSE (A) WILL NOT APPLY. THI S M EANS EXCEPTION HAS BEEN CARVED O UT I N RE SP E CT OF PAYM E NT OF 6 ITA NO.1551/MDS/2014 SUMS BY WA Y OF ANY CONTRIBUTIO N T OWARDS AN AP P R O V E D G RATUITY FUND . THUS THE LEG I SLA TURE W ANTED TO GIVE A SPE C IA L T REATME N T T O P ROVISION MADE BY AN ASSESSEE FOR T HE P URPOSE OF PAYM E NT BY WAY O F A NY CO NTRI B UTION TOWARDS AN APPROV E D GRAT UI TY FUND. THIS HA S TO BE TR EA T E D AS A SP EC IAL PROVISION. THE MARGINAL NOTE TO SE C TION 43B CLEARLY SAYS 'CE RT A I N DE DUCTIONS TO B E ONLY ON ACTUAL PAYMENT' . I T DEALS WITH VARIOUS ITEMS. SECTION 43B(B) DEALS GENERALLY WITH ANY SUM PAYABLE BY THE ASSESSEE AS AN EMP L OYER BY WAY OF CONTR IB UTION TO ANY PROVIDENT FUND A T SUPERANNUATION FUND OR GRATUITY FUND OR ANY O T HER FUND FOR THE WELFARE OF THE EMPLOYEES. OF COURS E, THE GRATUITY FUND IS ALSO REFERRED TO. SECTION'40A(7), CLAUSE (B), PARTI CULARLY SUB- CLAUSE ( I), THEREOF IS A SPECIAL PROVISION IN REGARD TO A C LAIM FOR DEDUCTION BASED ON A PROVISION MADE FOR PAYMENT TOW ARDS I 1N APPROVED GRATUITY FUND. THERE IS NO CLEAR INCONSIS TENCY BETWEEN THE TWO PROVISIONS, VIZ., SECTIONS 40A ( 7 ) AND 43B . SECTION 40A(7) IS IN NEGATIVE TERMS AND SE C TION 43B IS IN POSITIVE TERMS, THE EFFECT OF BOTH THESE PROVISIONS I S THAT IN ORDER TO CLAIM DEDUCTION IN RESPECT OF PAYMENT TO A GRATUITY FUND THE R E MUST BE ACTUAL PAYMENT AND THAT DEDUCTION CANNOT BE ALLOWED ON THE BASIS O F ANY PROVISION. THE ONLY EXCEPTION TO THE ABOVE RULE IS WITH REGARD TO THE P R OVISION FOR PAYMENT TO AN APPROVED GRATUITY FUND. IT CANNOT BE INTERPRETED THAT THE LATER PRO VISION IN SECTION 43B BY INTRODUCING THE NON OBSTANTE CLAUSE WOULD ABROGATE THE SPECIAL PROVISION WITH RE GARD TO THE PROVISION MADE FO R PAYMENT TO AN APPROVED GRATUITY FUND CONTAINED IN SECTION 4 0 A(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 TWO PROVISIONS WOULD CLEARLY INDICATE THAT THE LEGISLATURE NEVER INTENDED TO TAKE AWAY TH E BENEFIT CONFERRED UNDER CLAUSE (B) OF SECTION 40A(7) BY THE PROV I SIONS OF SECTION 43B(B). 7. THE HONBLE DELHI HIGH COURT IN THE CASE OF CI T VS. BECHTEL INDIA (P) LTD. (SUPRA) HELD AS UNDER: 6. FURTHER, WE ARE IN AGREEMENT WITH THE TRIBUNAL THAT S. 40A(7)(B) OF THE ACT WILL HAVE AN ' OVERRIDING EFFECT OVER S.43B OF THE ACT. IN THE FIRST PLACE SECTION 4 0A(1) IS AN UNEQUIVOCAL NON-OBSTANTE CLAUSE AND SINCE S. 40A(7)(B) SPECIFICALLY PERMITS A DEDUCTION OF A SUM 7 ITA NO.1551/MDS/2014 CONSTITUTING THE PROVISION TOWARDS AN APPROVED GRAT UITY FUND, THE SAID PROVISION WILL TAKE PRECEDENCE OVER A COMPARATIVELY GENERAL PROVISION LIKE S. 43B. SECOND LY, S. 40A(7)(A) WHICH DISALLOWS DEDUCTION OF ANY PROVI SION OF GRATUITY TO EMPLOYEES ON THEIR RETIREMENT IS ITS ELF MADE SUBJECT TO S. 40A(7)(B) WHICH ALLOWS SUCH DEDUCTION AS LONG AS IT IS MADE TOWARDS AN APPROVED GRATUITY FUND. THERE IS NO DISPUTE THAT IN THE INST ANT CASE THE PROVISION MADE IS TOWARDS CONTRIBUTION TO AN APPROVED GRATUITY FUND . THEREFORE THE CLAIM BY THE ASSESSEE FOR DEDUCTION ON THIS SCORE WAS CLEARLY JUSTIFIED. WE ARE ACCORDINGLY OF THE OPINION THAT N O SUBSTANTIAL QUESTION OF LAW AR I SES I N THIS REGARD AS WELL. 8. RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE UP HOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) I N DELETING THE DISALLOWANCE MADE FOR APPROVED GRATUIT Y FUNDS. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY , THE 12 TH DAY OF DECEMBER, 2014 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDR A PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED, 12 TH DECEMBER, 2014 SOMU 12 32 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .