Commissioner Of Income-Tax v. Jairam And Sons

K.S Radhakrishnan, J.:— This reference has been made by the Income-tax Appellate Tribunal under section 256(1) of the Income-tax Act, 1961, to consider the following questions:

“Whether, on the facts and in the circumstances of the case and on an interpretation of section 43B read with section 36(1)(va) the Tribunal is right in law in holding—

(i) the second proviso imposes the condition of payment before the due date only in respect of any sum received by an assessee from his employees to which the provisions of section 2(24)(x) apply,

(ii) the assessee is entitled to deduct the sum of Rs. 32,900 being the contribution to group gratuity scheme made on January 18, 1991?”

2. The assessee is a partnership firm, carrying on business as shipping agents. One of the grounds raised by the assessee before the Tribunal was regarding disallowance under section 43B of the Income-tax Act in respect of the expenditure by way of premium payable under the group gratuity scheme to the Life Insurance Corporation. It was contended by the assessee that the Commissioner (Appeals) had erred in confirming the disallowance of Rs. 32,900 claimed as payment made to the Life Insurance Corporation under the Group Gratuity Scheme.

3. The Assessing Officer had also held that as per the second proviso to section 43B, the claim was not allowable as the assessee had not made the payment before the due date as per the Explanation to section 36(1)(va). The Commissioner (Appeals) noticed that by letter dated December 20, 1990, the Life Insurance Corporation had directed the assessee to remit the sum of Rs. 32,900 before January 16, 1991, for renewing the premium which was due on November 1, 1990. But the assessee made the payment only on January 18, 1991. The Commissioner of Income-tax (Appeals) was of the view that the provisions with regard to the “due date” as per the Explanation to section 36(1)(va) were applicable in this case and hence the assessee was not eligible for the deduction, even though the payment had been made during the previous year itself. The Commissioner of Income-tax (Appeals) confirmed the disallowance.

4. The assessee took up the matter in appeal. The Tribunal noticed that the assessee had issued a cheque for Rs. 32,900 to Life Insurance Corporation on January 18, 1991, after the intimation was received from the Life Insurance Corporation on January 16, 1991. Though the remittance was made in the previous year ending on March 31, 1991, the Commissioner of Income-tax (Appeals) had sustained the disallowance taking the view that the payment had not been made before the due date as per the Explanation to section 36(1)(va). However, the Tribunal felt that the claim for deduction of such contribution should be considered under section 43B de hors the second proviso. The Tribunal held that when the “due date” as defined in the Explanation applied only to the employees' contribution to be credited to the employees' account, it would not be correct to say that the employer's contribution also should be made before the same due date. The Tribunal therefore held that the Commissioner (Appeals) was not correct in imposing the condition that the payment should have been made before the due date as defined in the Explanation which was applicable only for the purpose of the employees' contribution coming under clause (va) of sub-section (1) of section 36. The Tribunal thus reversed the order of the Commissioner of Income-tax (Appeals) and held that the assessee was entitled to deduction of the amount of Rs. 32,900 being the contribution to the group gratuity fund on January 18, 1991.

5. The same legal issue came up for consideration earlier before a Division Bench of this court in Commissioner Of Income-Tax v. South India Corporation Ltd., [2000] 242 ITR 114. The Division Bench examined the effect of the proviso to section 43B and considered the question whether payments made after “due date” are deductible or not. The scope of the Explanation to section 36(1)(va) was also considered. This court took the view that as per the Explanation to clause (va), for the purpose of the clause “due date” means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund. It is pointed out that the amount is deductible only if the assessee credits the amount to the employee's account in the relevant fund on or before the date by which he is legally or contractually required to do so. The right to deduction would be lost if the sum is credited after the due date. This court held that it cannot be an indefinite date left to the choice of the assessee. Further, this court also pointed out that under the main provision of section 43B of the Act, the payments made during the currency of the financial year relevant to the assessment year qualify for deduction in certain cases. But in the case of payments relating to provident fund etc., stress has been laid on payment within the “due date”. This court held, therefore, it cannot be said that payment made beyond the due date also qualifies for deduction, in view of the prescription in the main provision itself.

6. Later, this decision was followed by another Division Bench of this court in I.T.A No. 92 of 2000 (since reported in Commissioner Of Income-Tax v. G.T.N Textiles Ltd., [2004] 269 ITR 282 (Ker)). That was a case wherein the assessee was a company deriving income mainly from textile business. The assessment was completed on a total income of Rs. 67,09,434 as against Rs. 61,36,906 disclosed in the return. The difference in the income assessed was on account of the disallowance of the claim for deduction of the contribution to the employees' gratuity fund not paid by the assessee within the due date for making such payment under the law. The case related to employer's contribution. The assessee in that case attempted to make a distinction between the decision in Commissioner Of Income-Tax v. South India Corporation Ltd., [2000] 242 ITR 114 (Ker) which was not accepted by the Bench in I.T.A No. 92 of 2000 (Commissioner Of Income-Tax v. G.T.N Textiles Ltd., [2004] 269 ITR 282 (Ker)) and it was held that the same logic would apply to the contribution of employee and employer as well.

7. In such circumstances, we are of the view that the questions referred by the Tribunal are to be answered in favour of the Revenue and against the assessee. It is so answered and the I.T.R is disposed of accordingly.