Commissioner of Income-tax, Coimbatore v. Textool Co. Ltd
[Citation -2009-LL-0909-14]

Citation 2009-LL-0909-14
Appellant Name Commissioner of Income-tax, Coimbatore
Respondent Name Textool Co. Ltd.
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 09/09/2009
Assessment Year 1983-84
Judgment View Judgment
Keyword Tags gratuity fund
Bot Summary: 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(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. 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 it was not allowable under Section 36(1)(v) of the Act. 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.3/- : 3 : 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. Accordingly, the Commissioner came to the conclusion that since, on the facts of the case, the.4/- : 4 : 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. While answering the question, the High Court has observed as follows : In our opinion, the Commissioner of Income Tax 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. 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. 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.


IN SUPREME COURT OF INDIA 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 judgment, dated 4th February, 2002, rendered by High Court of Judicature at Madras, in Tax Case No. 267 of 1989. By impugned judgment, High court has answered question of law, referred to it by Income Tax Appellate Tribunal, Madras Bench (for short, Tribunal ) under Section 256(1) of Income Tax Act, 1961, (for short, Act ) at instance of Revenue. question of law, so referred, was as follows : ...Whether on facts and in circumstances of case, Appellate Tribunal is right in allowing deduction of Rs.55,84,754/- being payment made by assessee company directly to Life Insurance Corporation towards Group Gratuity Fund under Section 36 (1)(v) of Incocme Tax Act, 1961? Material facts relevant for purpose of present appeal may be stated thus : For assessment year, 1983-84, for which relevant previous year ended on 30th April, 1982, ..2/- : 2 : assessee claimed deduction of Rs. 92,06,978/- as contribution/provision towards approved gratuity fund. As per breakup of said amount, amount of Rs.5,84,754/- was paid as annual premium to Life Insurance Corporation( LIC for short); sum of Rs. 50,00,000/- was paid to LIC as initial contribution in group Life Assurance Scheme framed by LIC for benefit of employees of assessee and 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., Textool Company Ltd. Employees Group Gratuity Fund was approved by Commissioner of Income Tax, coimbatore, w.e.f. 25th February, 1983. While completing assessment, Assessing Officer allowed deduction of Rs. 36,22,224/- under Section 40A(7) of Act. However, deduction for balance amount was disallowed on ground that payment towards gratuity fund was made by assessee directly to LIC and not to approved gratuity fund and, therefore, it was not allowable under Section 36(1)(v) of Act. Being aggrieved, assessee preferred appeal to Commissioner of Income Tax (Appeals). Commissioner observed that initial payment of Rs.50,00,000/- and annual premium of Rs. 5,57,943/- was made by assessee directly to LIC instead of as ..3/- : 3 : contribution towards approved gratuity fund; LIC had accepted said payment on behalf of Group Life Assurance Scheme for exclusive benefit of employees of assessee under policy issued by it. Upon perusal of original Master policy issued by LIC, Commissioner recorded his satisfaction that initial contribution as well as annual premium had been credited by LIC to Group Life Assurance Scheme on behalf of Textool Company Ltd. Employees Group Gratuity Fund only, meaning thereby that insurance policy had been taken in name of approved gratuity fund only; this fund was shown as payee in policy; vide its letter dated 20th November, 1985, addressed to I.A.C., assessee had confirmed that in subsequent assessment years, they had contributed funds to Employees Group Gratuity Fund and trustees in turn had made payment to LIC in respect of Textool Co. Ltd.; Employees Group Gratuity Assurance Scheme under said policy and it was only initial payment and first annual premium had been made directly to LIC against said policy. Commissioner was thus, convinced that by making payment of amounts in question directly to LIC, assessee had not violated any of conditions stipulated in Section 36 (1) (v) of Act. Accordingly, Commissioner came to conclusion that since, on facts of case, ..4/- : 4 : objective of fund was achieved, narrow interpretation of provision would be straining language of Section 36(1)(v) of Act so as to deny deduction claimed by assessee. Consequently, Commissioner allowed said amount of Rs. 58,84,754/- as deduction for relevant assessment year. Being dissatisfied with view taken by Commissioner, Revenue took matter in further appeal to Tribunal. Relying on its earlier decision in case of Janambikai Mills Ltd, Tribunal dismissed appeal. As stated above, by impugned order, afore extracted question, referred at instance of revenue, has been answered by High Court in favour of assessee. While answering question, High Court has observed as follows : In our opinion, Commissioner of Income Tax (Appeals) as well as Tribunal have correctly held that merely because payments were made directly to LIC, company could not be denied benefit under Section 36(1)(v) and amount had to be credited in favour of assessee. Both Commissioner (appeals) as well as Tribunal have correctly read law and have correctly relied upon aforementioned Supreme Court judgment. In our opinion, since finding of fact is that all payments made were only towards Group Gratuity Fund, there would be no question of finding otherwise. ..5/- : 5 : Learned counsel appearing on behalf of Revenue has submitted before us that provisions of Section 36(1)(v) of Act have to be construed strictly and for claiming deduction, conditions laid down in Section 36(1)(v) of Act must be fulfilled. It is urged that since during relevant previous year contribution by assessee towards gratuity fund was not in approved gratuity fund High Court was not justified in affirming view taken by Commissioner as also by Tribunal while answering reference in favour of assessee. However, on query by us as to whether contribution made by assessee in approved gratuity fund credited by LIC for employees of assessee and ultimately entire amount deposited with LIC came back to fund created by assessee for benefit of its employees and approved by Commissioner w.e.f. 25th February, 1983, or not, learned counsel is not in position to make categorical statement in that behalf. Having considered matter in light of background facts, we are of opinion that there is no merit in appeal. True that fiscal statute is to be construed strictly and nothing should be added or subtracted to language employed in Section, yet ..6/- : 6 : strict construction of provision does not rule out application of principles of reasonable construction to give effect to purpose and intention of any particular provision of Act. (See : Shri Sajjan Mills Ltd. vs. Commissioner of Income Tax, M.P. & Anr. (1985) 156 ITR 585). From bare reading of Sectin 36(1)(v) of Act, it is manifest that real intention behind provision is that employer should not have any control over funds of irrevocable trust created exclusively for benefit of employees. In instant case, it is evident from findings recorded by Commissioner and affirmed by Tribunal that assessee had absolutely no control over fund created by LIC for benefit of employees of assessee and further all contribution made by assessee in said fund ultimately came back to Textool Employees Gratuity Fund, approved by Commissioner with effect from following previous year. Thus, conditions stipulated in Section 36(1)(v) of Act were satisfied. Having regard to facts found by Commissioner and affirmed by Tribunal, no fault can be found with opinion expressed by High court, warranting our interference. ..7/- : 7 : Resultantly, appeal is dismissed with no order as to costs. ....................J. [ D.K. JAIN ] ....................J. [ R.M. LODHA ] NEW DELHI, SEPTEMBER 09, 2009. Commissioner of Income-tax, Coimbatore v. Textool Co. Ltd
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