Decided on August 31,1982



S. Rajaratnam, Accountant Member - (1.) THESE four appeals filed by International Ore & Fertilizer (India) (P.) Ltd., Secunderabad, are against the orders of the Commissioner (Appeals) II, Hyderabad, for the assessment years 1975-76 to 1978-79. Since they involve a common issue, they are conveniently clubbed together.
(2.) The assessee is a company doing business as marketing agents for non-resident companies. It has a scheme for gratuity for its employees. It had also set up a recognised gratuity fund which was common for the assessee and some of its associate companies. At the time when the assessments were made, the claim for recognition was pending. Meanwhile, the assessee had entered into a contract with the Life Insurance Corporation (LIC) which had agreed to underwrite assessee's obligation to its employees. The same liability which the gratuity fund was obliged to subject itself under this scheme was undertaken by the LIC in consideration of the payment of premium for its Master Policy. This is the premium amount of Rs. 19,569 for the assessment year 1975-76, Rs. 12,366 for the assessment year 1976-77, Rs. 8,983 for the assessment year 1977-78 and Rs. 6,270 for the assessment year 1978-79, which are now in dispute. The first appellate authority assumed that there was a bar to the deduction of premium amount in Section 40A(7) of the Income-tax Act, 1961 ('the Act') and that it could not, therefore, be considered under Section 37 of the Act. All the same, he observed that the amount would be allowable as a deduction, if and when the gratuity fund receives approval from the Commissioner. The assessee has come up in appeal claiming that the payment is even otherwise allowable as a deduction. Meanwhile, the assessee's request for recognition was turned down by the Commissioner on the ground that there was a common fund and that such a common fund does not satisfy the requirements for recognition. The assessee's petition to the CBDT against this decision was also turned down for the same reason. The assessee has now sought recognition on the basis that the common gratuity fund may be treated as the fund only for the assessee as a result of the associate companies getting out of the fund. The assessee is not certain whether at least this request would be allowed.
(3.) THE learned counsel for the assessee claimed that the requirement that there should be a separate fund is not a correct one even as pointed out by this Tribunal in Stanmore (Anamallay) Estates Ltd. v. ITO [1982] 1 ITD 519 (Mad.). A copy of the policy was filed to show that the LIC had undertaken the responsibility of paying gratuity to those persons who leave service or die during the year and that it was not a provision for gratuity so as to require the compliance under Section 40A(7). He claimed that the premium paid will have to be allowed whether the fund created by the assessee is recognised or not.;

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