Commissioner of Income Tax vs Jayalakshmi Mills (P.) Ltd.

R. Jayasimha Babu, J.—The question referred to us at the instance of the Revenue is, as to whether the assessee, a manufacturer of textiles

which had failed to fulfil the conditions laid down in Section 40A(7)(b)(ii) of the Income Tax Act, 1961, is entitled to the benefit of the deduction of

the amount actually remitted which fell far short of the amount required to be remitted to the approved gratuity fund, as a deduction.

It is not in dispute that the assessee has not complied with the requirements of Section 40A(7)(b)(ii), Clause (3) of the Act. The assessee had

made a provision towards gratuity to the extent of Rs. 1,41,148, Rs. 3,29,874 and Rs. 2,97,173 for the assessment years 1973-74, 1974-75 and

1975-76, but, had made payment of only Rs. 5,20,000 as on March 30, 1976, and no further payments were made thereafter before April 1,

1977. In order to avail of the allowance of the entire amount of these provisions for these years, the assessee should have paid the full amount

before March 31, 1977, 50 per cent. by March 31, 1976, and the balance on or before March 31, 1977. Though the assessee had paid Rs.

5,20,000 before March 31, 1976, it did not pay the balance of the amount of the provisions before March 31, 1977. The provision made for the

years 1973-74 and 1974-75 being covered by the payment of Rs. 5,20,000, deduction has been allowed for those two years. However, for the

assessment year 1975-76, though the provision made was for Rs. 2,97,173, the amount that could be taken to have been remitted for that year

amounted to only Rs. 40,978, that amount being the balance left after deducting the provisions for 1973-74 and 1974-75 from the sum of Rs.

5,20,000 that had been remitted.

Though the Income Tax Officer had disallowed the claim for any deduction on account of provision having been made for gratuity for the year

1975-76, the Commissioner as also the Tribunal have allowed a sum of Rs. 40,978 out of that sum on the ground that proportionate benefit could

be granted, though the section itself does not contemplate the grant of any proportionate benefit.

We are unable to accept the view of the Tribunal. Section 40A(7) in Clause (a) prohibits any deduction being allowed in respect of any

provision made by the assessee for the payment of gratuity to its employees.

Clause (h) of Sub-section 7 removes that prohibition only subject to compliance by the assessee with all the conditions laid down therein. The

conditions are spelt out in Section 40A(7)(b)(ii)(1), (2) and (3). Sub-clause (3) of Clause (ii) of Section 40A(7)(b) of the Act requires that a sum

equal to at least 50 per cent. of the admissible amount or where any amount utilised out of such provision for the purpose of payment of any

gratuity is paid before April 1, 1976, the balance of the admissible amount reduced by the amount so utilised, is paid by the assessee by way of

such contribution before April I, 1977.

Admittedly, the assessee failed to pay the balance of the amount before April 1, 1977. The assessee cannot, therefore, claim the benefit of the

provision without complying with the provision in the manner required. There is no scope for holding that remittance of an amount which falls far

short of the amount required to be remitted would amount to compliance in part. The compliance should be compliance with all the requirements

laid down in the section and it is impermissible for the assessee to bargain and claim that it will take a lesser benefit by merely reducing the level of

its compliance. The view taken by the Tribunal and the Commissioner that the denial of the benefit sought by the assessee is merely technical is, in

our view, not the proper approach. The provisions of taxation laws are required to be complied with and cannot be a matter of bargain, with the

assessee offering compliance in the manner convenient to him and yet claiming the benefit which is not permissible except in case of full and proper

compliance.

The question referred to us is, therefore, answered in favour of the Revenue and against the assessee. The Revenue shall be entitled to costs in

the sum of Rs. 750.