Specific Deduction under Section 40A(7)(b) Prevails over Section 43B for Approved Gratuity Fund Contributions

1. Introduction

The case of M/s Sanmar Speciality Chemicals Limited v. The Assistant Commissioner of Income‑Tax (Madras High Court, 24 March 2025) addresses a dispute over the deductibility of a provision made by an assessee for gratuity contributions. The appellant, a manufacturer of specialty chemicals and biotechnology products, claimed a deduction under Section 40A(7)(b) of the Income‑Tax Act, 1961 for contributions to an approved gratuity fund (managed by LIC). The Assessing Officer disallowed the provision under Section 43B—requiring actual payment for certain deductions—adding Rs.31,24,172 back to the appellant’s income. After conflicting decisions at the CIT(A) and the ITAT, the High Court was asked whether the specific carve‑out in Section 40A(7)(b) overrides the general requirement of Section 43B.

2. Summary of the Judgment

The Madras High Court, through Justice Anita Sumanth and Justice G. Arul Murugan, held:

Section 40A(7)(b) specifically allows a deduction for contributions to an approved gratuity fund or for gratuity payable in the year.
Section 43B contains a non‑obstante clause requiring actual payment before deduction for certain expenses, including gratuity provisions.
When two non‑obstante provisions coexist, a specific provision (Section 40A(7)(b)) governs over a general one (Section 43B) in respect of approved gratuity fund contributions.
The appellant had made and paid the contribution within the relevant period to an approved fund, supported by trust deeds, actuarial valuation, and LIC confirmation.
The substantial questions were answered in the assessee’s favour and the appeal was allowed.

3. Analysis

3.1 Precedents Cited

Sarwan Singh & Anr. v. KasturiLal (AIR 1997 SC 265): On interpreting co‑existing non‑obstante clauses—later provisions do not necessarily override earlier specific ones.
R.S. Ragunath v. State of Karnataka (AIR 1992 SC 81): A specific law continues to apply over a general law unless expressly repealed.
Ashoka Marketing Ltd. v. Punjab National Bank (AIR 1991 SC 855): A general provision does not derogate from a special one (“generalia specialibus non derogant”).
Shasun Chemicals & Drugs Ltd. v. CIT (73 Taxmann.com 293): Non‑obstante in Section 40A(1) overrides Section 43B where Section 40A(9) applies.
Commonwealth Trust (I) Ltd. v. CIT (269 ITR 290 Kerala HC): Specific carve‑out in Section 40A(7)(b) prevails over Section 43B for approved gratuity funds.
Bechtel India (P) Ltd. v. Dy. CIT (75 CHH 1132 Delhi HC): Reiterated that Section 40A(7)(b) is a specific provision taking precedence over the general Section 43B.

3.2 Legal Reasoning

Both Sections 40A and 43B begin with non‑obstante clauses, raising interpretive challenges:

Section 40A(7)(b) is a specific exception permitting deduction for contributions to an approved gratuity fund.
Section 43B is a general provision disallowing certain deductions unless actually paid.
Applying the principle generalia specialibus non derogant, the Court held that the specific carve‑out in Section 40A(7)(b) must prevail over the general requirement in Section 43B.
The appellant proved actual payment to an approved fund, satisfying both the specific and general requirements, thus qualifying for deduction without waiting for actual payment mandated by Section 43B.

3.3 Impact

This ruling clarifies and cements the priority of Section 40A(7)(b) over Section 43B:

Assessees making provisions for gratuity into approved funds can claim deductions upon provision (and payment), not deferred by Section 43B’s actual‑payment rule.
Tax authorities must respect the specific carve‑out and accept timely contributions to approved funds as deductible.
This precedent will guide disputes involving co‑existent non‑obstante provisions, reaffirming that specific statutory exceptions govern general clauses.

4. Complex Concepts Simplified

Non‑obstante clause: A statutory override that says “despite anything else in this Act...”.
Section 40A(7)(b): Allows a deduction for amounts contributed to an approved gratuity fund or gratuity payable in that year.
Section 43B: Disallows certain deductions unless they are actually paid in the relevant year.
Generalia specialibus non derogant: A general provision does not override a specific one covering the same subject matter.

5. Conclusion

The Madras High Court’s decision in M/s Sanmar Speciality Chemicals Limited v. The Assistant Commissioner establishes that a specific statutory exception—Section 40A(7)(b)—governs over the general disallowance rule in Section 43B when it comes to approved gratuity fund contributions. This ruling benefits taxpayers by securing timely deductions for approved fund contributions and guides revenue authorities in harmonizing co‑existing non‑obstante provisions.