- (1.) This appeal, by special leave is directed against the judgment, dated 4th February, 2002, rendered by the High Court of Judicature at Madras, in Tax Case No. 267 of 1989. By the impugned judgment, the High Court has answered the question of law, referred to it by the Income-tax Appellate Tribunal, Madras Bench (for short, "the Tribunal") Under Section 256(1) of the Income-tax Act, 1961, (for short, "the Act") at the instance of the Revenue. The question of law, so referred, was as follows: ...Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in allowing the deduction of Rs. 55,84,754/- being the payment made by the Assessee company directly to Life Insurance Corporation towards Group Gratuity Fund Under Section 36(1)(v) of the Incocme-tax Act, 1961 Material facts relevant for the purpose of the present appeal may be stated thus: For the assessment year 1983-84, for which the relevant previous year ended on 30th April, 1982, the Assessee claimed a deduction of Rs. 92,06,978/- as contribution/provision towards the approved gratuity fund. As per the breakup of the said amount, an amount of Rs. 5,84,754/- was paid as annual premium to the Life Insurance Corporation ("LIC" for short); a sum of Rs. 50,00,000/- was paid to the LIC as initial contribution in the group Life Assurance Scheme framed by the LIC for the benefit of the employees of the Assessee and the remaining amount of Rs. 36,22,224/- was shown as provision for initial contribution. It is common ground that Assessee company's gratuity fund, viz., the Textool Company Ltd. Employees Group Gratuity Fund was approved by the Commissioner of Income-tax, Coimbatore, w.e.f. 25th February, 1983. While completing assessment, the Assessing Officer allowed a deduction of Rs. 36,22,224/- Under Section 40A(7) of the Act. However, deduction for the balance amount was disallowed on the ground that payment towards the gratuity fund was made by the Assessee directly to the LIC and not to an approved gratuity fund and, therefore, it was not allowable Under Section 36(1)(v) of the Act.
(2.) Being aggrieved, the Assessee preferred appeal to the Commissioner of Income-tax (Appeals). The Commissioner observed that the initial payment of Rs. 50,00,0007- and the annual premium of Rs. 5,57,943/- was made by the Assessee directly to the LIC instead of as a contribution towards the approved gratuity fund; the LIC had accepted the said payment on behalf of the Group Life Assurance Scheme for the exclusive benefit of the employees of the Assessee under the policy issued by it. Upon perusal of the original Master policy issued by the LIC, the Commissioner recorded his satisfaction that the initial contribution as well as annual premium had been credited by the LIC to the Group Life Assurance Scheme on behalf of the Textool Company Ltd. Employees Group Gratuity Fund only, meaning thereby that the insurance policy had been taken in the name of the approved gratuity fund only; this fund was shown as the payee in the policy; vide its letter dated 20th November, 1985, addressed to the L A.C., the Assessee had confirmed that in the subsequent assessment years, they had contributed funds to the Employees Group Gratuity Fund and the trustees in turn had made payment to the LIC in respect of the Textool Company Ltd.; Employees Group Gratuity Assurance Scheme under the said policy and it was only the initial payment and first annual premium had been made directly to the LIC against the said policy. The Commissioner was thus, convinced that by making payment of the amounts in question directly to the LIC, the Assessee had not violated any of the conditions stipulated in Section 36(1)(v) of the Act. Accordingly, the Commissioner came to the conclusion that since, on the facts of the case, the
(3.) objective of the fund was achieved, a narrow interpretation of the provision would be straining the language of Section 36(1)(v) of the Act so as to deny the deduction claimed by the Assessee. Consequently, the Commissioner allowed the said amount of Rs. 58,84,754/- as deduction for the relevant assessment year.;