Commissioner of Income Tax vs Textool Co. Ltd.

V.S. Sirpurkar, J.

The question referred to us is as follows :

Whether, on the facts and in the circumstances of the case, the Tribunal is right in allowing the deduction of Rs. 55,84,754 being the payment

made by the assessee-company directly to Life Insurance Corporation towards Group Gratuity Fund u/s 36(1)(v) of the Income Tax Act, 1962 ?

It seems that the assessee-company had made this payment to the Life Insurance Corporation of India (hereinafter referred to as the ''LIC) as

the said sum was insured by the LIC. There is no denial that the Textool Company Employees Group Gratuity Fund is a duly approved gratuity

fund created for the exclusive benefit of the employees of the said company and that it is also an irrevocable trust. It also could not be denied that

the payments were made by the assessee-company directly to the LIC instead of a contribution towards the approved gratuity fund. However, the

LIC had accepted the payment as on behalf of the Group Gratuity Life Assurance Scheme which was meant to the exclusive benefit of the

employees under the policy issued by the LIC. Even the original master policy was produced before the authority and after going through the said

policy, the authority had recorded its suggestion that the initial contribution of Rs. 50 lakhs as also the premium of Rs. 5,57,943 was paid on behalf

of the assessee and was credited to the Group Gratuity Life Assurance Scheme on behalf of the assessee-company''s Group Gratuity Fund only.

This is what the Commissioner (Appeals) has recorded in his order.

In other words, the insurance policy had been taken in the name of the approved Gratuity Fund only and this fund is also shown as the payee in

the policy. It is also confirmed by the appellant- company in its letter dated 20-11-1985, addressed to the Inspecting Assistant Commissioner that

in the subsequent assessment years, the company had contributed funds to the Employees Group Gratuity Fund and the trustees in turn had made

payment to the Life Insurance Corporation in respect of the Textool Co. Ltd. Employees Group Gratuity Assurance Scheme under the Master

Policy No. GGI 42365. Only the initial payment and first annual premium had been made directly by the appellant company to the LIC towards

the said policy.

From this, the Commissioner (Appeals) came to the conclusion that this payment was well covered within the language of section 36(1)(v) and to

hold that merely because the payment was made directly to the LIC, the section was violated would be making violence to the language of the

section and in the process losing the real intent on the part of the legislature. Ultimately, the Commissioner (Appeals) has specifically recorded as

follows :

Even the assessing officer does not appear to deny that the contribution in the instant case amounting to Rs. 55,84,754 is positively towards the

approved Gratuity Fund.

On facts the contribution cannot be linked to any other fund or scheme. Even the LIC has received the payment by way of premium for the policy

issued under its Group Life Assurance Scheme for the benefit of the employees of the Textool Company Limited.

On these findings, ultimately the Commissioner (Appeals), relying on the Supreme Court judgment Commissioner of Income Tax, Bangalore Vs.

J.H. Gotla, Yadagiri, came to the conclusion that the credit had to be given to the assessee for the aforementioned amount. The Tribunal also went

on to endorse this view.

In our opinion, the Commissioner (Appeals) as well as the Tribunal have correctly held that merely because the payments were made directly to

the Life Insurance Corporation, the company could not be denied the benefit u/s 36(1)(v) and the amount had to be credited in favour of the

assessee. Both the Commissioner (Appeals) as well as the Tribunal have correctly read the law and have correctly relied upon the aforementioned

Supreme Court judgment. In our opinion, since the finding of fact is that all the payments made were only towards the Group Gratuity Fund, there

would be no question of finding otherwise. Therefore, it will have to be answered that the Tribunal was right in allowing the deduction of Rs.

55,84,754 being the payment made by the assessee-company directly to the LIC towards the Group Gratuity Fund u/s 36(1)(v) of the Income

Tax Act. The reference is answered accordingly in favour of the assessee.

OPEN