Income Tax Appellate Tribunal - Jaipur
Mewar Sugar Mills Ltd. vs Deputy Commissioner Of Income Tax on 9 February, 1998
Equivalent citations: [1998]65ITD163(JP)
ORDER
Pradeep Parikh, A.M.
1. The assessee is in appeal before us against the order of the learned CIT(A), dt. 14th October, 1993, for asst. yr. 1984-85. The only grievance of the assessee is against the disallowance of Rs. 4,67,852 made under s. 43B in respect of provisions made for gratuity.
2. The assessee-company had created a gratuity fund on 11th July, 1963, for its employees which has been granted recognition by the CIT from year to year. The assessee got its gratuity liability evaluated from an actuary and to make good the shortfall in the fund, the assessee made a provision of Rs. 4,67,852 during the year. The same was disallowed under s. 43B by the AO as it was merely a provision and no actual payment was made. The CIT(A) confirmed the action of the AO.
3. We have heard parties. As per sub-cl. (i) of cl. (b) of s. 40A(7) of the Act, if any provision is made for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, such provision shall be allowed as a deduction. In our opinion, the reference of the CIT(A) to the words "that has become payable during the previous year" with the facts of this case are not in consonance with law. These words only qualify that provision which has been made in respect of the liability that has arisen during the year. They do not qualify the earlier part of sub-cl. (1), that is, provision made for the purpose of any contribution towards an approved gratuity fund. If the interpretation of the CIT(A) is accepted, the very purpose of creating a fund and its approval by the CIT would be defeated. Sec. 40A(7)(a) prohibits the deduction of a provision. But s. 40A(7)(b) clearly carves out exception where provision would be allowed as a deduction. Under sub-cl. (1), two types of provisions are envisaged : (a) provision for contribution towards approved gratuity fund, and (b) provision in respect of gratuity liability payable during the year. The provision referred to in part (b) above is in respect of that liability which becomes payable during the year and there is no approved gratuity fund. Thus in such cases where payment of liability arises during the year, the provision in respect thereof will be allowed as a deduction. If the same criterion has to be applied as regards contribution to gratuity fund, then the very purpose of creating a fund would be defeated.
4. In view of the above provision of law, s. 43B will not at all be applicable in this case and hence we direct that the provision of Rs. 4,67,852 made towards contribution to the approved gratuity fund be allowed as a deduction.
5. In the result, the appeal is allowed.
I. S. Verma, J.M.
1. I have gone through the order of my learned brother carefully. As far as allowability of "the provision" for contribution towards approved gratuity fund under the provisions of s. 40A(7)(b) is concerned there is no dispute about the allowability of such a 'provision' and the question in this case is not as to whether 'the provision' is disallowable under the provisions of s. 40A or not, the question is this appeal is whether "the provision" made by the assessee for the purpose of contribution towards the approved gratuity fund which is allowable under s. 40A(7)(b), but is hit by the provisions of s. 43B can be allowed in the asst. yr. 1984-85 by ignoring the provisions of s. 43B or not, and to decide this issue it is desirable to consider the provisions of s. 43B which read as under :
"43B. Notwithstanding anything contained in any other provision of this act a deduction otherwise allowable under this Act in respect of -
(a) xxx xxx xxx xxx
(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees.
(c) xxx xxx xxx xxx (d) xxx xxx xxx xxx
shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in s. 28 of that previous year in which such sum is actually paid by him :
Provided that xxx xxx xxx xxx Provided further that no deduction shall, in respect of any sum referred to in cl. (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below cl. (va) of sub-s. (1) of s. 36 and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date."
2. From the language of s. 43B, which start with the words "Notwithstanding anything contained in any other provisions of this Act" it is clear that the provisions of this section open with a non obstante clause which means that it overrides the provisions of other sections of the Act meaning thereby that if any claim of deduction is hit by the provisions of s. 43B, then, the fact that the same is allowable under any other provisions of the Act is not relevant for invoking the provisions of s. 43B. As far as the present case is concerned it is admitted fact that the assessee has made only a 'provision' for the purpose of contribution towards the approved gratuity fund i.e., the amount has not been actually paid during the previous year relevant to the asst. yr. 1984-85 which, in my opinion, is hit by the provisions of s. 43B(b) and the allowability of the same by virtue of the provisions of s. 40A(7)(b), which are of prohibitory/restrictive nature and not of beneficial nature and nowhere debars the applicability of the provisions of s. 43B; cannot undo the overriding applicability of the provisions of s. 43B. Consequently the claim of deduction on the basis of 'the provision' only cannot be allowed. The order of the CIT(A) is confirmed and the assessee's appeal is dismissed.
REFERENCE UNDER S. 255(4) OF THE IT ACT, 1961 Since we have differed in our conclusion in the above appeal, the following point is hereby referred under s. 255(4) of the IT Act, 1961, for the decision of a Third Member :
"Whether s. 43B will apply to any sum payable by the assessee as an employer by way of contribution to an approved gratuity fund or not ?"
V. Dongzathang, Senior Vice President (Third Member)
1. There being a difference of opinion between the members, the following point was referred to the Third Member :
"Whether s. 43B will apply to any sum payable by the assessee as an employer by way of contribution to an approved gratuity fund or not ?"
The brief facts are that the assessee is a sugar mill. Its policy regarding wages and emoluments to its employees is covered by the Sugar Wage Board appointed by the Union Government from time to time. The assessee-company set up a separate gratuity fund in the year 1961 and the fund was granted recognition by the CIT which is renewed from time to time. The company got its annual liability of gratuity evaluated from an actuary and for this year the liability was valued at Rs. 22,80,000 as on 31st July, 1983. The trust had already funds of Rs. 18,12,187. The balance amount of Rs. 4,67,852 was further provided during the year. Since this amount was an ascertained liability, the assessee claimed it as deduction under s. 40A(7) of the IT Act. The AO disallowed the claim under s. 43B as it was merely a provision and no actual payment was made during the previous year relevant to the assessment year.
2. On appeal, the learned CIT(A) concurred with the AO. According to him any provision made for the purpose of payment for a sum by way of contribution towards an approved gratuity fund that has become payable during the previous year or for the purpose of meeting actual liability in respect of payment of gratuity to the employees, that has arisen during the previous year is to be allowed as a deduction. Referring to s. 40A(7)(b)(i), it was held by the learned CIT(A) that unless the gratuity becomes payable by way of contribution towards the approved gratuity fund, the deduction cannot be allowed. The basis of the actuarial valuation is the estimation of the gratuity that will become payable during a particular year. Unless the liability has arisen on the basis of such valuation, the assessee will not create provision by the diversion to gratuity fund. Moreover, it was held that s. 43B has an overriding effect over the provisions of s. 40A(7) of the Act. Since the assessee also has not paid the said amount, it was held by the learned CIT(A) that the assessee was not entitled to any deduction on this account.
3. Aggrieved by the said order, the assessee took up the matter in appeal before the Tribunal. According to the learned Accountant Member, if any provision is made for the purpose of payment of a sum by way of any contribution towards the approved gratuity fund, such provision shall be allowed as a deduction as per sub-cl. (i) of cl. (b) of s. 40A(7) of the Act. According to him the reference of the CIT(A) to the words "that has become payable during the previous year" with the facts of this case are not in consonance with law. These words only qualify that provision which has been made in respect of the liability that has arisen during the year. They do not qualify the earlier part of sub-cl. (i) that is provision made for the purpose of any contribution towards an approved gratuity fund. According to him if the interpretation of the CIT(A) is accepted, the very purpose of creating a fund and its approval by the CIT would be defeated. Sec. 40A(7)(a) prohibits the deduction of a mere provision, but s. 40A(7)(b) clearly carves out an exception where the provision would be allowed as a deduction. Under sub-cl. (i), two types of provisions are envisaged : (a) provision for contribution towards approved gratuity fund, and (b) provision in respect of gratuity liability payable during the year, the provision referred to in part (b) above is in respect of the liability which becomes payable during the year and, there is no approved gratuity fund. Thus, in such cases where payment of liability arises during the year, the provision in respect thereof will be allowed as a deduction. If the same criterion has to be applied as regards contribution to the approved gratuity fund, then the very purpose of creating a fund would be defeated. In view of the above provision of law, it was held by him that s. 43B will have no application in such cases and, therefore, the provision of Rs. 4,67,852 made towards contribution to the approved gratuity fund was to be allowed as a deduction.
4. The learned Judicial Member also agreed that the provision of contribution towards approved gratuity fund under the provisions of s. 40A(7)(b) is an allowable deduction and it was held by him that there was no dispute about the allowability of such provision. The learned Judicial Member, however was of the view that such provision for contribution towards approved gratuity fund allowable under s. 40A(7)(b) is all the same hit by the provisions of s. 43B and, therefore, the same has to be disallowed in view of the overriding effect of s. 43B which is a non obstante clause which opens with the words "Notwithstanding anything contained in any other provisions of this Act".
5. From the above facts, it is clear that the main issue for decision before me is narrowed down to i.e., when there are two conflicting provisions, which one will override the other. This aspect has not been properly highlighted by either of the members. The learned Accountant Member gave his finding on the basis that the provisions of s. 40A(7) have an overriding effect in view of the non obstante clause. He, however, did not highlight this aspect in the order. Similarly, the learned Judicial Member held that the provisions of s. 43B which is a non obstante clause has an overriding effect without discussing how it will have an overriding effect on similar provision of s. 40A(7) which is also a non obstante clause.
6. The case was fixed up for hearing on 8th January, 1998. M. Gargieya the learned authorised representative appeared for the assessee. According to him the provisions of s. 43B will have no application to the case of the assessee in view of the specific provisions of s. 40A(7)(b)(i) of the Act. According to him the provision of s. 40A(7) have been on the statute w.e.f. 1st April, 1973, as inserted by the Finance Act, 1975. It carves out a special concession for an approved gratuity fund without which any provision "whether called as such or by any other name" made by the assessee for the payment to his employees on their retirement or on termination of their employment for any reason was to be disallowed as a deduction. It is, therefore, submitted that sub-cl. (i) of cl. (b) of s. 40A(7) is a specific provision which will have overriding effect on any other provision of the Act. Arguing further on the point, it was submitted that the amount was not hit by the provisions of s. 43B of the IT Act. According to him, the principle laid down by the decision in the case of Srikakollu Subba Rao & Co. vs. Union of India (1988) 173 ITR 708 (AP) is still a good law. Though the legislature has inserted Expln. 2 to the said section to overcome the decision of the Hon'ble Andhra Pradesh High Court referred to above, the ratio is still a good law and it is still applicable. Reliance was placed on the decision of the Tribunal in the case of Modipon Ltd. vs. IAC (1995) 52 TTJ (Del) 477. Reliance was also placed on the decision in the case of IAC vs. Indian Aluminium Cables Ltd. (1992) 41 ITD 80 (Del).
7. Continuing the argument, the learned representative of the assessee submitted that the assessee in this case set up a separate gratuity fund in the year 1961. The fund was approved by the CIT vide his order dt. 7th November, 1963. On the basis of the terms of the deed, there is no specific date for payment. In that view of the matter, the due date for payment cannot be said to have arisen. If the amount is not due for payment as such, then the provisions of s. 43B of the Act will have no application and, therefore, the amount is not hit by the restrictive provisions of s. 43B of the Act. Reference was also made to the Circular of the CBDT No. 550 [(1990) 182 ITR (St) 123] for the proposition that the assessee is not hit by the provisions of s. 43B as the Explanation inserted by the Finance Act, 1989, is relevant only for cl. (a) of s. 43B of the Act.
8. M. Gargieya, the learned authorised representative of the assessee further drew my attention to the definition of the word "paid" for the purpose of s. 36(1)(v). In view of the said definition, it was submitted that it was not necessary for the assessee to get the deduction for actual payment as "paid" for the purpose of s. 36(1)(v) means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head "Profits and gains of business or profession". Since the assessee has followed mercantile system of accounting, the provision made by the assessee for contribution towards the approved gratuity fund is tantamount to actual payment and deduction is liable to be allowed on the basis of the system of accounting followed by the assessee.
9. Even in any case, the assessee should be given the benefit of doubt in case there are conflicting provisions in the Act in the light of the decision of the Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC).
10. On the other hand B. R. Meena, the learned Senior Departmental Representative supported the order of the learned Judicial Member. According to him the overriding nature of these two provisions namely, s. 40A(7) and s. 43B has been duly considered by the learned authors Chaturvedi & Pithisaria and it was noted that for and asst. yr. 1984-85 s. 43B has an overriding effect over the provisions of s. 40A(7) and under the provisions of s. 43B a deduction in respect of any sum payable by the assessee as an employer by way of contribution, inter alia, to any gratuity fund is to be allowed in computing the business income of that previous year in which such sum has been actually paid by him. Since s. 43B is a specific provision, it will have an overriding effect on the general provisions. My attention has been drawn to the Circular No. 372, dt. 8th December, 1983, wherein the provisions of s. 43B have been explained. In view of this specific provision, it is submitted that the section will have an overriding effect over all other provisions of the Act. For this proposition reliance was placed on the decision of the Hon'ble Gujarat High Court in the case of Addl. CIT vs. Tarun Chemical Mills Ltd. (1978) 113 ITR 745 (Guj) and Saurashtra Cement & Chemicals Ltd. vs. CIT (1980) 123 ITR 669 (Guj). In the later case, it was held by the Hon'ble High Court that the particular amendment would override the general amendment and such view cannot be assailed as unreasonable or impossible and, therefore, wrong.
11. B. R. Meena, the learned Senior Departmental Representative, further highlighted the general principles of interpretation. According to him, it is the primary duty of the Courts to find out the intention of the legislature and to give effect thereof. There is no scope for importing into the statute words which are not there. Such importation would not be to construe but to amend the statute. Even if there be a casus omissus the defect can be remedied only by legislation and not by judicial interpretation. Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be as held in the case of Smt. Tarulata Shyam vs. CIT (1977) 108 ITR 345 (SC) when the language of the statute is clear, it is not permissible to use the speech of the Finance Minister or seek external aid. Full effect is to be given and the fiscal statute should be construed strictly. It is not for the Court to strain and stress the language of the section so as to enable the taxpayer to escape the tax. For this proposition, reliance was placed on the decision of the Hon'ble Supreme Court in the case of Anandji Haridas & Co. (P) Ltd. vs. Engineering Mazdoor Sangh (1975) 99 ITR 592 (SC) and CED vs. Alladi Kuppuswamy (1977) 108 ITR 439 (SC). It is also submitted that the interpretation should not be absurd nor nugatory. All the parts of the statute of sections must be construed together and every clause and the section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so when literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the legislature. Since the legislature in this case tried to tighten the delayed tactics resorted to by the employers in making actual payment to the gratuity fund created by it, the provisions of s. 43B squarely applies and, therefore, the view taken by the Hon'ble Judicial Member is liable to be sustained.
12. I have carefully considered the rival submissions in the light of the material on record. The arguments advanced by both the parties cannot be faulted particularly in regard to the interpretation of taxing statutes as enunciated by the judicial authorities right upto the apex Court. As pointed out earlier, the limited issue before me is narrowed down to the question whether s. 40A(7) which is a non obstante clause will have an overriding effect on the provisions of s. 43B of the Act or vice versa.
13. The question relating to allowability of provision made for payment of gratuity for and from asst. yr. 1973-74 is governed by s. 40A(7) and not on the general principles because s. 40A(7) have overriding effect by virtue of non obstante clause at the beginning of s. 40A(1), which reads as under :
Sec. 40A(1) : "Expenses or payments not deductible in certain circumstances" - The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provisions of this Act relating to the computation of income under the head 'Profits and gains of business or profession'."
14. Sec. 40A(7) provides that no deduction to be allowed in the computation of profits and gains of a business in respect of any provision made for the payment of gratuity to the employees or retirement or on termination of employment. However, s. 40A(7)(b) itself carves out certain exceptions. The restriction is not to apply in relation to any provision made for the purpose of payment of a sum by way of contribution towards an approved gratuity fund that becomes payable during the previous year, on for the purpose of meeting actual liability in respect of payment of gratuity to the employees that has arisen during the previous year. There are certain other exceptions also.
15. Sec. 43B also start with a non obstante clause reading as under :
"Notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act in respect of -
(a) xxx xxx xxx xxx
(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in s. 28 of that previous year in which sum is actually paid by him."
16. The second proviso to s. 43B further provides that no deduction in respect of sums referred in cl. (b) be allowed unless such sum has actually been paid on or before the due date as defined in Explanation below cl. (va) of sub-s. (1) of s. 36. The said Explanation provides that "due date" means the date by which the assessee is required as an employer to credit an employee's account in the relevant fund under any Act, order or notification issued thereunder or under any standing order, award, contract of service of otherwise.
17. The provisions of s. 40A(7) and s. 43B give rise to a conflicting situation. Sec. 40A(7) provides that no deduction shall be allowed in respect of any provision for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. Sec. 40A(7)(b) carves out an exception providing that this restriction or disabling section will not apply to provision made for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund or for the purpose of payment of any gratuity, that has become payable during the relevant previous year. Such an exception carved out in s. 40A(7)(c) enabling grant of deduction in respect of provision for payment towards any approved gratuity fund, etc. have an overriding effect by virtue of non obstante clause at the beginning of s. 40A(1) and will prevail over any contrary provisions contained in any provision of the Act. However, s. 43B provides that such deduction will be allowed only in the year in which it is actually paid. Thus, exception carved out in s. 40A(7)(b) and s. 43B are mutually contradictory.
18. In such a situation, exception carved out in s. 40A(7)(b) being a provision of special nature dealing with provision made for payment of a sum by way of any contribution towards an approved gratuity fund, etc. will prevail over the general provisions of s. 43B(b) dealing with contribution to any gratuity fund. The rule of construction which is relevant to the present enquiry is expressed in the maxim, "generalia specialibus non derogant", which means that when there is a conflict between a general and a special provision, the latter shall prevail. The said principle has been stated in Craies on Statute Law, 5th Edn. at p. 205, thus :
"The rule is, that whenever there is a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative, and the general enactment must be taken to effect only the other parts of the statute to which is may properly apply."
19. In view of the aforesaid discussion, the question relating to allowability of any provision for payment of any contribution towards an approved gratuity fund will be governed by exception carved out in cl. (b) of s. 40A(7) and the contrary provision contained in s. 43B(b) will not be applicable.
20. The decision of the Hon'ble Supreme Court in the case of Union of India vs. India Fisheries (P) Ltd. (1965) 57 ITR 331 (SC) fully fortify the proposition that if there is an apparent conflict between two independent provisions of law, the special provision must prevail. Similar view has been taken by the Hon'ble Gujarat High Court in the case of Tarun Chemical Mills Ltd. (supra) and Saurashtra Cement & Chemical Ltd. (supra).
21. The above conclusion arrived at by me is also fully supported by the fact that the legislature has not omitted the provisions of s. 40A(7)(b)(i) even while inserting the provisions of s. 43B. If the intention of the legislature is to deny this concession, then the provisions of s. 40A(7) would have been omitted as the provisions of s. 43B would have completely taken care of this aspect. Since the provisions of s. 40A(7) are retained, it can be safely assumed that the legislature does intend to continue the concession given to the approved gratuity fund.
22. Even on merits, there is no clear finding as to when the amount becomes payable. The learned authorised representative of the assessee submitted that there has not been any specific provision regarding the due date for payment and, therefore, the provisions of s. 43B of the Act cannot be applied on this account. There is no finding recorded by the AO in this regard also. Therefore, even on merit it appears the provisions of s. 43B of the Act cannot be applied without such clear finding.
23. The matter will now go back to the regular Bench for decision according to majority opinion.