Commnr. of
Income Tax, Coimbatore Vs. M/S. Textool Co. Ltd. [2009] INSC 1554 (9 September
2009)
Judgment
CIVIL
APPELLATE JURISDICTION CIVIL APPEAL NO. 447 OF 2003 Commner. of Income Tax,
Coimbatore .. Appellant(s) Versus M/s Textool Co. Ltd. .. Respondent(s) O R D E
R 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.
Being
aggrieved, the assessee preferred appeal to the Commissioner of Income Tax
(Appeals). The Commissioner observed that the initial payment of Rs.50,00,000/-
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 I.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 Co. 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
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.
Being
dissatisfied with the view taken by the Commissioner, the Revenue took the
matter in further appeal to the Tribunal. Relying on its earlier decision in
the case of Janambikai Mills Ltd, the Tribunal dismissed the appeal.
As stated
above, by the impugned order, the afore extracted question, referred at the
instance of the revenue, has been answered by the High Court in favour of the
assessee. While answering the question, the High Court has observed as follows
:
"In
our opinion, the Commissioner of Income Tax (Appeals) as well as the Tribunal
have correctly held that merely because the payments were made directly to the
LIC, the company could not be denied the benefit under Section 36(1)(v) and the
amount had to be credited in favour of the assessee. Both the Commissioner
(appeals) as well as the Tribunal have correctly read the law and have
correctly relied upon the aforementioned Supreme Court judgment. In our
opinion, since the finding of fact is that all the payments made were only
towards the Group Gratuity Fund, there would be no question of finding
otherwise."
Learned
counsel appearing on behalf of the Revenue has submitted before us that the
provisions of Section 36(1)(v) of the Act have to be construed strictly and for
claiming deduction, conditions laid down in Section 36(1)(v) of the Act must be
fulfilled. It is urged that since during the relevant previous year the
contribution by the assessee towards the gratuity fund was not in an approved
gratuity fund the High Court was not justified in affirming the view taken by
the Commissioner as also by the Tribunal while answering the reference in
favour of the assessee. However, on a query by us as to whether the
contribution made by the assessee in the approved gratuity fund credited by the
LIC for the employees of the assessee and ultimately the entire amount
deposited with the LIC came back to the fund created by the assessee for the
benefit of its employees and approved by the Commissioner w.e.f. 25th February,
1983, or not, learned counsel is not in a position to make a categorical
statement in that behalf.
Having
considered the matter in the light of the background facts, we are of the
opinion that there is no merit in the appeal. True that a fiscal statute is to
be construed strictly and nothing should be added or subtracted to the language
employed in the Section, yet a strict construction of a provision does not rule
out the application of the principles of reasonable construction to give effect
to the purpose and intention of any particular provision of the Act. (See :
Shri Sajjan Mills Ltd. vs. Commissioner of Income Tax, M.P. & Anr. (1985)
156 ITR 585). From a bare reading of Sectin 36(1)(v) of the Act, it is manifest
that the real intention behind the provision is that the employer should not
have any control over the funds of the irrevocable trust created exclusively
for the benefit of the employees. In the instant case, it is evident from the
findings recorded by the Commissioner and affirmed by the Tribunal that the
assessee had absolutely no control over the fund created by the LIC for the
benefit of the employees of the assessee and further all the contribution made
by the assessee in the said fund ultimately came back to the Textool Employees
Gratuity Fund, approved by the Commissioner with effect from the following
previous year.
Thus, the
conditions stipulated in Section 36(1)(v) of the Act were satisfied. Having
regard to the facts found by the Commissioner and affirmed by the Tribunal, no
fault can be found with the opinion expressed by the High court, warranting our
interference.
Resultantly,
the appeal is dismissed with no order as to costs.
....................J. [ D.K. JAIN ]
....................J. [ R.M. LODHA ]
NEW DELHI,
SEPTEMBER 09, 2009.
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