High Court Of Madras
CIT vs. Premier Cotton Spg. Mills Ltd.
Sections 36(1)(v), 37(1)
Asst. Year 1974-75
V.S. Sirpurkar & N.V. Balasubramanian, JJ.
Tax Case No. 865 of 1992
16th July, 2002
Counsel Appeared
T.C.A. Ramanujam, for the Revenue : Srinath Sridevan, for the Assessee
JUDGMENT
N.V. BALASUBRAMANIAN, J. :
The following two questions have been referred to us by the Tribunal in relation to the asst. yr. 1974-75 of the assessee : “1. Whether, on the facts and in the circumstances of the case and having regard to provisions of r. 103 of the IT Rules, 1962, the Tribunal was right in law in holding that the assessee-company is eligible for deduction of gratuity of Rs. 3,41,202 as admissible under s. 36(1)(v) of the IT Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case and having regard to provisions of r. 103 of the IT Rules, 1962, the Tribunal’s interpretation that the last drawn salary could also be construed to be salary during the year is sustainable in law ?” The short point that arises for consideration is whether the assessee is entitled to the deduction of gratuity amount of Rs. 3,41,203 paid to an approved gratuity fund as a contribution made to the fund. The ITO applied r. 103 of the IT Rules, 1962, and held that the assessee would be entitled to claim a deduction of a sum of Rs. 2,27,037, and disallowed the balance on the ground that the amount is not covered under r. 103 of the said rules and completed the assessment. The CIT(A), allowed the appeal preferred by the assessee, but proceeded on a different footing and held that the assessee would be entitled to the deduction of the entire amount. The Revenue has challenged the said order in appeal before the Tribunal and the only point that was raised before the Tribunal was that under r. 103 of the IT Rules, the salary paid to an employee at the end of the year should not be taken into consideration for the purpose of allowability of the expenditure under r. 103 of the Rules but the salary paid during the entire year should be taken into consideration for the said purpose. The Tribunal held that under the Payment of Gratuity Act, the gratuity is paid on the basis of the last drawn salary and equally for the purpose of applicability of r. 103 of the Rules, the amount of gratuity contributed to the fund would constitute expenditure and the payment to the approved gratuity fund, calculated on the basis of the salary paid at the end of the year would not exceed the ceiling limit prescribed under r. 103 of the Rules. The Tribunal thus dismissed the appeal preferred by the Revenue. It is against the order of the Tribunal, the reference has been made at the instance of the Department. Heard Mr. T.C.A. Ramanujam, learned senior standing counsel for the Revenue, and Mr. Srinath Sridevan, learned counsel for the assessee. The submission of Mr. T.C.A. Ramanujam is that for the purpose of determining the ceiling limit prescribed under r. 103 of the IT Rules, the salary drawn by an employee during the entire year should be taken into account and it is not permissible to take into account the salary paid at the end of the year as increments might have been sanctioned during the year and, therefore, the calculation should be made on the salary paid during the entire year. Mr. T.C.A. Ramanujam also submitted that s. 40A(7) of the Act would apply and the Tribunal has not considered the applicability of s. 40A(7) of the Act and, therefore, the matter requires to be remitted to the Tribunal to consider the applicability of s. 40A(7) of the Act to the facts of the case. Mr. Srinath Sridevan, on the other hand, submitted that the amount is allowable under s. 36(1) (v) read with the IT Rules, r. 103. He further submitted even assuming that there was an excess amount, the excess amount would be allowable under s. 37 of the Act as there was an actual payment of gratuity to an approved gratuity fund and, therefore, the entire amount would be allowable either under s. 36(1)(v) or under s. 37 of the IT Act, 1961. Mr. Srinath Sridevan referred to the decision of this Court in Triplicane Permanent Fund Ltd. vs. CIT (1989) 78 CTR (Mad) 173 : (1989) 179 ITR 492 (Mad), which was followed in CIT vs. Rayalaseema Passenger & Goods Transports (P) Ltd. (1998) 147 CTR (Mad) 197 : (1998) 230 ITR 332 (Mad).
5. We have carefully considered the submissions of learned counsel for the Revenue and the assessee. We are of the view that to decide the issue that arises in the instant case, it is not necessary to go into the question whether the ceiling limit prescribed under r. 103 should be calculated on the basis of the last drawn salary of the employee or the entire salary drawn by the employee during the entire year. We find that the assessee had made contribution to an approved gratuity fund and that would necessarily constitute the expenditure incurred by the assessee for the purpose of business and is allowable as expenditure in the year in which the payment was made. There is no dispute that the assessee had contributed a sum of Rs. 3,41,203 to the approved gratuity fund and we are of the view that if the entire amount is not allowable under s. 36(1)(v), the balance amount would necessarily have to be allowed as a business expenditure under s. 37 of the IT Act, 1961, as the money has gone out of the hands of the assessee and it was a business expenditure incurred by the assessee wholly and exclusively for its business purpose. This Court in Triplicane Permanent Fund Ltd. vs. CIT (supra) which was followed in CIT vs. Rayalaseema Passenger & Goods Transports (P) Ltd.(supra), has taken the view that such payments would be allowable under s. 37 of the IT Act, 1961, and the limit under r. 103 does not come into operation. This Court has also held that s. 40A(7) of the Act has no application when there was an actual payment to an approved gratuity fund and there is no change in the legal position as far as the question of considering the allowability of the expenditure on payment basis even after the introduction of s. 40A(7) of the Act. Hence, we hold that the actual payment made to the gratuity fund is allowable as business expenditure and the Tribunal was right in holding that it should be allowed as a business expenditure. Though the question referred to us raises the question regarding allowability under s. 36(1)(v) of the Act, we hold that the entire amount would be allowable either under s. 36(1)(v) or under s. 37 of the Act. Accordingly, the first question referred to us is answered in favour of the assessee and against the Revenue. In view of the answer to the first question, it is unnecessary to answer the second question and the second question is returned unaswered. The tax case is disposed of accordingly. The assessee will be entitled to cost of Rs. 500.
[Citation : 258 ITR 253]
