Opinion Of Eminent Legal Luminaries On Controversial Issues

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Whether Amount Deposited With LIC Group Gratuity Fund Is Allowable U/s. 37?

QUERY: The assessee is a Co-Operative Society and maintaining accounts on mercantile system of accounting. During the financial year 2008-09 (Asst. yr. 2009-10) on the basis of actuary valuation made provisions of Rs. 80 lakhs towards employees gratuity fund and during the same financial year deposited full amount to the LIC under Group Gratuity Life Assurance Scheme. The AO wants to disallow as on the ground that it is not Approved Gratuity Fund. Assessee’s pleas is that the same is allowable u/s. 40A(7) read with section 43B. In past so many years the same was allowed by the AO though no specific reference was made.

Kindly let us know the legal view with case law if available.
ANSWER: S. 29 of the Act reads as under:

“The income referred to in section 28 shall computed in accordance with the provisions contained in sections 30 to 43D”.

S. 43B reads as under:

“Notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act, in respect of –

(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees, or -------

Shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him.

Thus this section commences with a non obstante clause and therefore it overrides the other provisions of the Act. So, any payment made to LIC Group Gratuity Fund even if it is not approved is allowable under this section on the basis of payment made. Further, from the fact, it is clear that amount of Rs. 80 lakhs has been paid to Gratuity Fund and therefore the same is allowable, minus already allowed in the earlier years, as there is no requirement that it should be paid to a Approved Gratuity Fund. [See CIT vs. Commonwealth Trust (P) Ltd. – 269 ITR 290 (Ker.)]

One comment on “Whether Amount Deposited With LIC Group Gratuity Fund Is Allowable U/s. 37?

    Dear Sir

    My client being regional rural bank set up in AP had made provisions in books of accounts towards contributions to gratuity fund maintained by LIC (AY 2012-13)

    Assessing officer u/s.40A(7) limited the claim for provision to the extent of benefits paid to the employees by LIC

    Kindly advise us in this regard

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