Commissioner of Income Tax vs Hindustan Wire Products Ltd.

Gupta, J.

On 30-12-1992, the assessee filed its return for the assessment year 1992-93. It declared an income of Rs. 1,16,99,320. The assessee had submitted a Scheme of Group Gratuity to the Commissioner, Patiala.

The Scheme was approved by the Commissioner vide his letter dated 23/24-4-1992. The Scheme was made effective from 1-2-1992. The assessee paid an amount of Rs. 15 lakhs towards the Scheme on 31-3-1992 by a cheque in favour of the LIC. This cheque was accepted by the Corporation and a Policy No. GG (CA)/207345 was issued. It was made effective from 1-2-1992.

The assessee claimed deduction of Rs. 15 lakhs from its income on account of the deposit having been made vide cheque dated 31-3-1992. This claim was disallowed by the assessing officer with the observation that the "case is covered u/s 43B(b) read with (the) second proviso." Various other deductions were also disallowed. Aggrieved by the order, the assessee filed an appeal. Its claim was rejected. The assessee then filed an appeal before the Tribunal. The Tribunal accepted the assessees claim and deleted the addition. Aggrieved by the order dated 28-11-2000 passed by the Tribunal, the revenue has filed the present appeal.

The solitary contention raised by Mr. R.P. Sawhney, the counsel for the revenue, is that in view of the provisions of section 43B(b) of the Income Tax Act, 1961 (hereinafter referred to as the Act), the Tribunal has erred in allowing the deduction. Is it so?

Admittedly, the assessee had issued the cheque on 31-3-1992. In pursuance to the cheque, the LIC had issued a policy with effect from 1-2-1992. The employees of the assessee got the benefit and the cover under the policy issued by the Corporation with effect from 1-2-1992. Despite this factual position, the counsel for the revenue contends that the cheque having not been encashed within 15 days as provided for in the second proviso, the deduction was legally not admissible.

Section 36 of the Act allows the assessee the right to claim deduction on account of payment of premium or gratuity, etc. Should this right be rendered redundant by an act of a third party on which the assessee has no control? If the contention raised on behalf of the revenue is accepted, an assessee would lose benefit which is legally admissible to it on account of no fault of its own. It would lead to injustice and an unfair result. The provision contained in the second proviso to section 43B is only calculated to ensure that the deduction shall be admissible if the payment has been made "within 15 days from the due date." The Corporation had accepted the cheque issued by the assessee on 31-3-1992. For reasons which are not on record, the entry regarding the encashment of the cheque was made on 24-4-1992. For this, the assessee was not to blame. It has not even been suggested that the payment had not been made by the due date. The Corporation having accepted the cheque and issued the policy, it shall be deemed to have realised the amount irrespective of the fact that the entry regarding encashment was made after the expiry of 15 days.

Mr. Sawhney contends that this interpretation of the provision would defeat the purpose of the second proviso.

The contention is misconceived. We are interpreting the provisions of a taxing statute. The interpretation should be such as would promote the object of the Act. The clear object of the Act is to grant deduction in respect of a payment made by an employer/assessee towards gratuity paid to the employees. The assessee has admittedly made the payment. The employees have admittedly got the benefit. The LIC had issued the policy. The policy was effective from 1-2-1992. Despite the payment having been made by the assessee and the intended beneficiaries, viz., the employees having got the benefit, the revenue wants to deny the deduction to the assessee. This would be grossly unfair and cannot be allowed.

No other point has been raised.

In view of the above, we find that the Tribunal has taken a possible view. It promotes justice. The case does not raise any substantial question of law so as to call for any interference u/s 260A of the Act. Resultantly, the appeal is dismissed in limine.