Specific Provision u/s 40A(7)(b) prevails over S. 43B in Approved Gratuity Fund Deduction: Madras HC [Read Order]

In a recent ruling, the Madras High Court clarified the legal interplay between Section 40A(7)(b) and Section 43B of the Income Tax Act, ruling that where contributions are made to an approved gratuity fund, the specific provision under Section 40A(7)(b) would prevail over the general provision of Section 43B, despite both sections containing non-obstante clauses.

Sanmar Speciality Chemicals Limited, the petitioner, engaged in the manufacture and sale of specialty chemicals and biotechnology products, had made a provision of Rs. 31,24,172 towards its approved gratuity fund managed by the LIC for the Assessment Year 2008-09.

The Commissioner of Income Tax (Appeals) accepted the claim but the Income Tax Appellate Tribunal (ITAT) disallowed it, ruling that the provision was hit by Section 43B of the Income Tax Act, which allows deductions only on actual payment.

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Challenging this, the assessee argued that Section 40A(7)(b) is a specific provision permitting deductions for contributions to an approved gratuity fund, so it should override Section 43B of the Income Tax Act. The revenue argued that actual payment was necessary and that Section 43B of the Income Tax Act, 1961, would prevail.

The bench comprising Justices Dr. Anita Sumanth and G. Arul Murugan examined the legislative history and jurisprudence around non-obstante clauses and held that when both provisions contain overriding clauses, the specific provision (Section 40A(7)(b)) must take precedence over the general (Section 43B) of the Income Tax Act.

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The court also observed that the assessee had consistently made such contributions to an approved LIC-managed gratuity fund, which had been accepted before and in subsequent assessment years, and the documentation supported actual payment and approval.

The court referred to several precedents, including Shasun Chemicals (SC) and Bechtel India Pvt. Ltd. (Delhi HC), and explained that specific statutory provisions must be given effect over general ones, even when the latter is introduced later in time.

The court answered all substantial questions of law in favor of the assessee and allowed the appeal. The court set aside the disallowance and confirmed the legitimacy of deductions made under Section 40A(7)(b) of the Income Tax Act in relation to an approved gratuity fund.

To Read the full text of the Order CLICK HERE

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