Commnr. Of Income Tax, Coimbatore vs M/S. Textool Co. Ltd

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 ..2/-

: 2 :

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

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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

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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."

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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

..6/-

: 6 : 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.

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Resultantly, the appeal is dismissed with no order

as to costs.

....................J. [ D.K. JAIN ]

....................J. [ R.M. LODHA ]

NEW DELHI, SEPTEMBER 09, 2009.