The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has held that taking separate exemption for claiming contribution to the gratuity fund was not needed as approval granted to master trust was applicable to companies formed by restructuring.
The Principal Commissioner of Income Tax (PCIT) noted from the annual report of the assessee-company Gujarat Urja Vikas Nigam Ltd, forming parts of the accounts for the impugned year that the assessee-company was formed by way of restructuring of Gujarat Electricity Board (GEB) resulting in formation of seven companies, including the assessee-company and the assessee company being the holding company and other six its subsidiaries.
As a result of this restructuring, the Notes revealed, the Master Trust being managed by the Life Insurance Corporation of India on behalf of GEB for the gratuity liability to its employees, was inherited by the assessee, and the assessee-company was providing for the gratuity liabilities of all the companies formed by restructuring. The PCIT held that though inheritance of the Master Trust by the assessee from the GEB was lawful, but as regards the provision of the Income Tax Act, the trust needed to be approved for each subsidiary separately for allowance of gratuity provided for by the assessee.
The held that in view of separate approval not being taken by the different companies formed on the restructuring of the GEB, the contribution on account of gratuity to the Master Trust was not allowable in terms of provision of the Income Tax Act, and therefore, the assessment order allowing the assessee’s claim to the same was in error causing prejudice to the Revenue.
M.J. Shah, on behalf of the assessee contended that once the approval was granted to the Master Trust, it continued to be applicable to all the companies subsequently formed by restructuring, and there was no requirement for taking separate exemption for the purpose of claiming contribution to the gratuity fund. It was also pointed out that this Master Trust was being assessed by the Income Tax Department in the past many years, and therefore there was no violation of any provision of the Act.
He further pointed out that the Apex Court in the case of Text Cool company had already laid down the proposition that where the contributions were made to a fund over which the assessee had no control and all the contributions made to the said fund ultimately we’re going back to the assessee’s employees’ gratuity, which was approved by the Commissioner, then the conditions stipulated in Section 35(1)(v) of the Income Tax Act stood satisfied.
The two-member Bench of Annapurna Gupta, (Accountant Member) and Madhumita Roy, (Judicial Member), allowed this ground of appeal filed by the assessee holding that the Master Trust having been granted approval by the Commissioner, the initial restructuring of the GEB had brought out no change in the character or functioning of the Trust. Therefore, the requirement of entities, which were created on account of restructuring of GEB , seeking approval afresh of the Master Trust, was nothing but a mere but a mere technicality, and the assessee’s claim of contribution to this Trust could not be denied on account of not fulfilling this technical requirement technicality, and the assessee’s claim of contribution to this Trust could not be denied on account of not fulfilling this technical requirement.
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