Gauhati High Court
Commissioner Of Income-Tax vs Chandmal Sarawgi And Co. on 3 February, 1995
JUDGMENT V.D. Gyani, J.
1. This is a reference at the instance of the Revenue. The following questions of law are submitted by the Tribunal under Section 256(2) of the Income-tax Act, 1961, for this court's opinion :
"(i) Whether, on the facts and in the circumstances of the case and on a proper construction of Section 40A(7) of the Income-tax Act, 1961, the Tribunal was justified in holding that the provision for gratuity which was paid to the Life Insurance Corporation of India under the group gratuity scheme was an admissible deduction under Section 37 in the computation of the assessee's income ?
(ii) Whether the Tribunal's decision that Section 40A(7) has no application on the claim of the assessee for deduction of the provision for gratuity is not based on irrelevant consideration or on improper view of facts and law and is not arrived at without having regard to the relevant facts and evidence contained in the order of the authorities below, and whether the decision of the Tribunal is, therefore, not untenable in law ?"
2. The assessment year in question is 1976-77, the assessee had preferred an appeal before the Tribunal challenging the sustaining of the amount of Rs. 2,516, out of retiral benefit paid to an employee, Shri Gulabchand Paharia, manager of the assessee, which was disallowed by the Income-tax Officer. The total sum paid was Rs. 12,030, but considering the length of the manager's service, the Income-tax Officer allowed Rs. 4,515 and the balance of Rs. 7,515 was added back. On appeal, the Appellate Assistant Commissioner further allowed Rs. 5,000 and confirmed disallowance of Rs. 2,515.
3. The other point related to group insurance. An amount of Rs. 8,817 was paid by the assessee to the Life Insurance Corporation of India. It was also disallowed by the Income-tax Officer holding that the payment was not made to an approved gratuity fund. The Appellate Assistant Commissioner also confirmed the same observing that the assessee had not complied with the conditions laid down under Section 40A(7) of the Income-tax Act.
4. In appeal before the Tribunal, it was contended by the assessee that the payments were for the purpose of business and not a payment to be considered under Section 40A(7) of the Act. The Tribunal found that the payments were actually made for the purpose of business, of the assessee, during the accounting period relating to the assessment year and held that these payments were admissible as deductions under Section 57 of the Act. The amounts disallowed were accordingly directed to be deleted from the total income of the assessee.
5. Mr. Talukdar, learned standing counsel for the Revenue, contended that payment made to the Life Insurance Corporation under the group insurance scheme is not covered by Clause (b) of Sub-section 7 of Section 40A of the Act and emphasising the non obstante clause, he argued that Section 37 of the Act has no application to the present case.
6. Mr. Joshi, learned counsel, appearing for the assessee, on the other hand, maintained that on the facts as found by the Tribunal, there was no possibility of any view other than that taken by the Tribunal. The Tribunal having found that the payment was laid out wholly and exclusively for the purpose of the business of the assessee, the disallowance was rightly ordered to be deleted. The crux of the matter lies in the question whether deductions could be allowed under the general provision under Section 37 of the Act, as claimed by the assessee and granted by the Tribunal.
7. Sub-section (1) of Section 40A makes it clear that the provisions of the section shall have effect notwithstanding anything to the contrary contained in any other provision of the Act relating to computation of income. The Supreme Court in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 has categorically held that Section 40A, in view of the non obstante clause therein, has an overriding effect over the provisions of any other section. Explaining the provisions of Clause (a) of Sub-section (7) of Section 40A of the Act, which is made subject to Clause (b) thereof, the Supreme Court held that the deduction should not be allowed on general principles under any other section of the Act.
8. In view of the foregoing discussion, and the legal position as explained by the Supreme Court in Shree Sajjan Mills Ltd.'s case [1985] 156 ITR 585, our answer to the first question is in the negative, that is, in favour of the Revenue and against the assessee.
9. So far as the second question is concerned in view of our answer to the first question, it is not necessary to answer the second question, Reference answered accordingly.