Income Tax Act, 1961

--Business deduction under section 36(1)(v)--Contribution towards approved gratuity fund Payment directly to LIC--Assessee-company made payment of initial contribution and annual premium directly to LIC, instead of as a contribution towards the approved gratuity fund and LIC had accepted the said payment on behalf of the Group Life Assurance Scheme for the exclusive benefit of the employees of the assessee under the policy issued by it. Assessing officer disallowed the deduction of said payment under section 36(1)(v) as the payment towards the gratuity fund was made by the assessee directly to the LIC and not to an approved gratuity fund. Commissioner (Appeals) and Tribunal held that assessee had not violated any of the conditions stipulated in section 36(1)(v) and the same decision was also affirmed by High Court. Held: Rightly so, as it was evident from the findings recorded by the Commissioner and affirmed by the Tribunal that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contributions made by the assessee in the said fund ultimately came back to the Textool Employees Gratuity Fund, approved by the Commissioner with effect from the following previous year. Thus, the conditions stipulated in section 36(1)(v) were satisfied and no fault could be found with the opinion expressed by the High Court, warranting interference.

Income Tax Act, 1961, Sections 36(1)(v) & 40A(7)

In the Supreme Court of India

CIT v. Textool Co. Ltd.

Civil Appeal No. 447 of 2003

9 September, 2009