R.L. Segel, Judicial Member -
(1.) 1 to 5. [These paras are not reproduced here as they involve minor issues.]
6. Vide trust deed dated 31-3-1975, between the MMTC, the assessee and Mr. Shivnath and others as trustees, non-contributory group gratuity-cum-life assurance scheme was created for providing death-cum-retire-raent gratuity benefits to those employees of the MMTC who would be eligible for membership of the fund on the terms and conditions mentioned therein. By the said trust, it was intended that such provisions shall, inter alia, be made by means of assurances on the lives of employees which assurances shall be effected with the Life Insurance Corporation of India and the trustees shall apply for and effect with the Corporation such assurances on the lives of existing and future members as may from time to time be necessary in accordance with the rules thereof. A copy of the said trust deed is at pages 24 to 32 of the paper book filed by the assessee. The rules of the aforesaid fund are at pages 33 to 48 of the paper book filed by the assessee. On 29-12-1975, the assessee made an application to the Commissioner, New Delhi-I (by filing with the said application the aforesaid trust deed and the rules), for according the approval to the said fund. In the said letter, the assessee has expressly stated that it had established a gratuity fund for all the employees of the Corporation and for the purposes of establishing the said fund an irrevocable trust has been executed and that the entire fund would be operated through the Life Insurance Corporation of India with effect from the assessment year 1975-76. This application was duly considered by the Commissioner, Delhi-I, New Delhi and he vide his letter dated 8-2-1977, accorded his approval to the assessee's aforesaid gratuity fund. The said approval was effective from 1-12-1975.
7. Pursuant to the trust, the trustees of the aforesaid gratuity fund had taken the requisite LIC Gratuity-cum-Insurance Policy. The claim of the assessee for deduction of Rs. 13,65,458 being the contribution to the said fund was negatived by the ITO on the grounds that till the close of the year under consideration no fund had been created and no amount had been transferred to the said fund. The payment in question was not a payment to the fund but a payment made by the assessee directly to the LIC and purely on ad hoc basis. Even though, at the hearing before the IAC under Section 144B of the Act, the claim was restricted to Rs. 10,40,360, being the actuarial liability of the gratuity due in respect of the year under consideration. The ITO further held that the provisions of Section 40A(7)(b)(i)/(ii) of the Income-tax Act, 1961 ('the Act') are not satisfied in the present case.
8. Aggrieved by the said disallowance, the assessee brought the matter by way of appeal before the Commissioner (Appeals) who has allowed the claim to the extent of Rs. 10,40,360 by observing that there is substantial compliance with the terms of the provisions of Section 40A(7).
9. In the appeal before the Tribunal, the arguments by the departmental representative are on the same lines as were given by the ITO/IAC in his direction under Section 144B for negativing the claim of the assessee for the deduction of the aforesaid amount of Rs. 10,40,360. It was also urged that the actuarial liability of Rs. 10,40,360 was not quantified as on 31-3-1976 when the aforesaid amount of Rs. 13,65,458 was paid.
10. In reply, the learned counsel for the assessee, Mr. O.C. Tandon, took us through the office order dated 31-3-1976 containing the sanction by MMTC regarding payment to be made to the LIC, at page 13 of the paper book ; the letter of the assessee to the LIC dated 31-3-1976 wherein it is stated that the cheque of Rs. 4.65 lakhs drawn in favour of the LIC represented the payment of premium on the Master Policy in question on behalf of the trustees of MMTC's Group Gratuity-cum-Term Insurance Scheme, at page 14 of the paper book, office order dated 30-3-1976, wherein it. is clearly mentioned that the cheque of Rs. 8.82 lakhs to be paid to the LIC on the aforesaid Master Policy was being paid on behalf of the trustees of MMTC's Group Gratuity-cum-Term Insurance Scheme, at page 15 of the paper book ; the letter of the MMTC to the LIC dated 30-3-1976, wherein the LIC has been informed that the cheque of Rs. 8.82 lakhs was being paid to them towards the aforesaid Master Policy on behalf of the trustees of MMTC's Group Gratuity-Cum-Term Insurance Scheme, at page 16 of the paper book ; the copy of the aforesaid gratuity fund as on 31-3-1976, wherein the payment of Rs. 13,47,000 is shown to have been received from the assessee by the trustees of MMTC's Group Gratuity-cum-Life Assurance Scheme and the payment of that amount is in turn made by them (the said trustees) to the LIC, at page 17 of the paper book ; and copies of journal vouchers supporting the same dated 31-3-1976, at pages 18 to 21 of the paper book. It is, therefore, urged on the basis of this evidence that the payment was made by the assessee to the trustees of MMTC's Group Gratuity-cum-Term Insurance Scheme and they, in turn, on account of the aforesaid arrangement got the amount paid through the assessee to the LIC. The payment was thus made by the assessee to the said fund. The learned counsel for the assessee, Mr. Tandon,, further urged that Section 40A(7)(a) was not attracted in the present case. The assessee before us has not made any provision for the payment of the sum by way of contribution towards the approved gratuity fund or for the purpose of payment of any gratuity that has become payable during the year under consideration. The present case is a case of outright payment and so Section 36(1)(v) of the Act would be attracted in the present case and the assessee is entitled to the deduction claimed now on actuarial basis of Rs. 10,40,360. As rightly held by the Commissioner (Appeals) it is irrelevant whether this actuarial amount was determined as on 31-3-1976 or at a later stage when the amount claimed is less than the amount actually paid.
11. We have given consideration to the above arguments. As rightly held by the learned counsel for the assessee, Mr. Tandon, we, keeping in view the documents at pages 14 to 21 of the paper book, hold that the assessee-company had paid the sum of Rs. 13,47,000 to the trustees of the MMTC's Group-Cum-Term Insurance Scheme and it was on their behalf that that amount was paid by the assessee-company to the LIC, more so, when the trustees of MMTC's Group Gratuity-cum-Term Insurance Scheme have accepted the same in their books, as is clear from the documents at pages 17 to 21 of the paper book. The objection of the tax authorities in this behalf is, therefore, not correct.
12. It is correct that the aforesaid payment of Rs. 13,47,000 was on ad hoc basis as on 31-3-1976. The actuarial gratuity liability of the assessee for the year under consideration stands at Rs. 10,40,360. This factum is not disputed. The claim of the assessee in the course of the assessment proceedings was for lower amount than for which the claim was made of Rs. 13,65,458. The fact that this actuarial liability was computed not prior to 31-3-1976 but in the course of assessment proceedings will not disentitle the assessee to have the deduction of the aforesaid lower amount, if in law it is entitled to have it. The objection of the revenue in this behalf is also negatived.
13. We now come to Section 40A(7)(a) which is in the following terms:
Subject to the provisions of Clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason.
As rightly argued by the learned counsel for the assessee, Mr. Tandon, Section 40A(7)(a) has no application in the present case because the assessee has not made any provision for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. The present case is a case of payment made to the aforesaid gratuity fund when the actuarial liability in this behalf stood at Rs. 10,40,360.
14. Further, as rightly urged by the learned counsel for the assessee, Mr. Tandon, we have to examine as to whether the claim of the assessee in the light of the payment made can be allowed under Section 36(1)(v) which is in the following terms :
36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28-
(v) any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust ;
As rightly argued, the present case squarely falls within the ambit of Section 36(1)(v). We say so, because the aforesaid gratuity fund has been created by the assessee for exclusive benefit of his employees under an irrevocable trust as witnessed by the trust deed dated 31-3-1975, at pages 24 to 31 of the paper book of the assessee. The said gratuity fund, as is clear from the letter of the Commissioner, Delhi-I, New Delhi, dated 8-2-1977, stood approved with effect from 1-12-1975. The payment has been made by the assessee as an employer by way of contribution to that fund. The conditions pre-requisite for the application of Section 36(1)(v) are attracted in the present case. The Commissioner (Appeals) was, therefore, correct in allowing the claim of the assessee to the extent of Rs. 10,40,360.
15. In the result, the appeal by the revenue fails and is hereby dismissed.;