I-T - Whether deduction for contribution made to gratuity fund is allowable when the plea that payment was made to approved gratuity fund was not only raised at belated stage but also there did not appear to be concluded contract between assessee and the fund - NO: HC
By TIOL News Service
PATNA, AUG 23, 2016: THE issue is - Whether deduction for contribution made to gratuity fund is allowable when the plea that payment was made to an approved gratuity fund was not only raised at a belated stage but also there did not appear to be a concluded contract between assessee and the fund. NO is the answer.
Facts of the case
The assessee is a PSU of Government of Bihar and is carrying on the business of warehousing. Its return was processed initially, u/s 143 (1) and assessment was made at the total income filed but subsequently notices u/s 143 (2) & 142 (1) of the Act were issued. Thereafter, fresh notice u/s 142 (1) of the Act was issued along with detailed questionnaires. The representative of the assessee appeared and after repeated adjournments, finally produced the books of accounts and complete reply of the questionnaire and other details were submitted. The AO after considering the fact that the contribution had been made after due date statutorily prescribed, disallowed the payment of employer's contribution to EPF u/s 43B of the Income-tax Act and also disallowed the employees' contribution to EPF treating the same as income from other sources as per the provision of Section 24(2) r/w Section 36 (1) (va) of the Act. Similarly, the provision towards gratuity was disallowed and the same was added to the total income in terms of the provisions of Section 40A (7) of the Act. Upon appeal before CIT(A), the appeal was allowed so far as the delayed payment of employer's contribution to EPF was concernedu/s 43B of the Act and the said addition was ordered to be deleted. Whereas delayed payment of the employees' contribution to EPF is concerned, the addition of the same was confirmed holding that no relief is allowable on the ground of Section 43B as the omission of second proviso to the said Section does not apply to delayed payment of employees' contribution to any Provident Fund or any fund mentioned in sub-section (2) of Section 24 of the Act. . Similarly, accepting the reasoning of the AO the addition towards provision for gratuity was also confirmed in terms of relevant provisions of Section 40A (7) of the Act. On further appeal both by the Department and the Assessee, the appeal of the Department was dismissed as also that of the assessee. Aggrieved by the same, the present appeal has been filed by the assessee.
After hearing the parties, the High Court held that,
++ the issue as to whether a distinction can be made between the employees' contribution and employer's contribution with regard to applicability of Section 43B of the Act was raised before the Bombay High Court in Ghatge Patil Transports case and before the Punjab and Haryana High Court in Hemla Embroidery Mills' case and both the High Courts have answered the same holding that both the employees' and employer's contributions are covered by the amendment of Section 43B of the Act after considering Alom Extrusions'case. Although technical reading of Section 43B and the provisions of sub-section (2) of Section 24 (x) read with Section 36 (1) (va) of the Act creates the impression that the employees' contribution would continue to be treated differently under a different head of deduction, as the head of deduction is separate under Section 43B and Section 36 of the Act but on a broader reading of the amendments made to Section 43B repeatedly and the intention of Parliament, there appears to be sufficient justification for taking the view that the employees' and the employer's contribution ought to be treated in the same manner. In Alom Extrusions' case, the Supreme Court has not made any distinction between the two as similar problem of implementation would arise in both the cases, although specific issue was not raised therein; but both the Bombay High Court and the Punjab and Haryana High Court in the above referred cases after considering Alom Extrusions' case have answered the question treating the two contributions on the same footing;
++ it is, evident that only before this Court for the first time the plea has been taken by the assessee that the provision has been made for the purpose of payment to an approved gratuity fund, i.e., the LIC Group Gratuity Scheme. It is apparent that the appellant is now trying to raise, at a belated stage, a pure question of fact which has not been raised by it before any of the three lower authorities. Such a pure question of fact cannot be permitted to be raised by the assessee at this belated stage. Along with the memorandum of appeal the assessee had brought on record two letters of the LIC which merely refers to LIC Group Gratuity Scheme for the employees of the assessee and the amounts that would become payable, if the assessee subscribed to the said scheme. The date of the second letter is the last date of the previous year of the AY in question and till that date it does not appear that there was any concluded contract between the assessee and the LIC for subscribing to the said scheme nor anything has been brought on the record to show that the contribution had been made for the previous year relevant to the assessment year in question. Thus, it is not open to to the assessee to even raise and argue such a question in view of the clear provisions of Section 40A (7) of the Act. The appellant was certainly not entitled to deduction of the said provision made for gratuity and I see no reason to interfere with the finding that has been recorded concurrently by all the three authorities.
(See 2016-TIOL-1805-HC-PATNA-IT)
