The Income Tax Appellate Tribunal (ITAT), Cochin, has held that the provision for gratuity made for the benefit of the retired employees can’t be disallowed under Section 43B of the Income Tax Act, 1961.
The Assessing Officer had disallowed the provisions made by the assessee towards gratuity, leave salary, bonus and medical aid of retired staff during the period May 2010 to January 2012 on the ground that such sums are allowable only in the year of payment.
The assessee contended that these provisions were made for the staff who retired between 2010 and 2012 whose gratuity was reworked consequent to the increase in the gratuity limit from Rs.3.5 lakhs to 10 lakhs. It was submitted that these provisions were also made as per the directions of the Registrar of Cooperative Societies in order to comply with the RBI guidelines.
The Tribunal found that there was a provision for gratuity at Rs.29,28,621/- which was disallowed on the ground that it was not actually paid and also not ascertained.
“Before us, the Ld. AR submitted that gratuity is an ascertained liability in respect of retired employees and this is to be allowed. In our opinion, payment of gratuity is governed by the provisions of section 43B(b) of the I.T. Act,” the Tribunal said.
Granting relief to the assessee, the Tribunal observed that “Under section 43B of the Act, the Legislature has specifically mentioned about the fund. Therefore, the meaning as given in section 43B cannot be said to be the same as in section 40A(7)(b)(i) of the Act. Thus, in this case, provision was made for payment of gratuity to retiring employees in respect of the previous year, it is not necessary that actual payment has to be made. If such amount is earmarked for payment of gratuity, i.e., provision is made for payment of gratuity, the amount has to be allowed for deduction. In view of this, we are inclined to decide the issue in favour of the assessee and against the Department.”
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