Gratuity Payment to LIC is Eligible for IT Deduction: ITAT [Read Order]

Ex-Gratia - Gratuity

In District Co-operative Bank vs. Income Tax Officer (ITO), Visakhapatnam bench of Income Tax Appellate Tribunal (ITAT) recently held that the payment of gratuity to Life Insurance Corporation of India is eligible for deduction under section 36(1)(v) & section 40A(7)(b) of the Income Tax Act 1961.

The assessee in the instant case is Co-operative Bank filed its return of income for the relevant assessment year and claimed deduction towards payment of gratuity premium to LIC.

During the assessment proceedings, the Assessing Officer (AO) observed that the assessee has debited a sum of Rs.4,60,59,225 to the Profit & Loss account towards the gratuity premium paid/payable to LIC. Out of which Rs.70 lakhs was paid to LIC of India and a sum of Rs.3,90,59,225/- was payable at the end of the year and the assessee has paid the remaining premium during the financial year before the due date of filing the Return of Income.

He further observed that assessee has not satisfied the conditions of section 36(1)(v) and also section 40A(7)(b) of the Act to be eligible for deduction. He was of the view that per section 40A(7) of the Act unless the assessee makes the payment to the approved gratuity fund, the deduction is not allowable.

On appeal CIT (A) also upheld the order passed by the assessee. Aggrieved by the order of the authority assessee approached the tribunal on further appeal.

Before the bench council for the assessee advocate, G.V.N. Hari submitted that the assessee has contributed the group gratuity premium to the LIC of India under Master proposal group scheme. The payments made towards the gratuity in the form of premiums to the LIC of India have no control over the assessee bank to utilize the same for its business purpose. It was also argued that since the payment was made to the approved schemes of the LIC, the payment made to the LIC under gratuity scheme is completely under the control and management of the LIC of India and the assessee has no control on utilization of the funds and also submitted all the proof documents before the bench.

After analyzing the above narrated facts deeply, the Tribunal bench comprising of Judicial Member V. Durga Rao and Accountant Member D.S. Sunder Singh observed that while perusing the available material facts it is clear that the assessee had made application to LIC of India under pension and group schemes, and taken policy under Master proposal for group for payment of gratuity and is contributing the sums to the LIC of India towards the group gratuity on actuarial basis. The assessee has not made any provision and made the payment before filing the return of income and the assessee did not claim any further deduction as expenditure. Thus it can be analyzed that there is no double deduction claimed by the assessee.

The division bench further observed that moreover, the expenditure claimed by the assessee under group gratuity scheme to LIC of India was allowed in the earlier years also. While concluding the issue, the bench further declared that payment made to gratuity fund maintained with LIC has no control over the irrevocable trust created exclusively for the benefit of employees and deduction shall be allowed.

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