Section 40A (9) of Income Tax Act 1961 Case Law

Commissioner of Income Tax, Coimbatore Vs. M/s. Pricol Ltd., Tax Case (Appeal) No. 343 of 2007, Date of Order: 01.04.2014, High Court of Madras

Provision for retirement benefit created on the basis of service weight age of an employee couldn't be allowed to be deducted as it was just a provision and could not be termed as gratuity fund or any other welfare fund under section 40A(9).

In a case the scheme is not a recognised one, but one reached as per the agreement between the parties. It is not denied by the assessee that a provision was made in the accounts as regards the gratuity payable based on the service weightage. Being a provision made for payment of gratuity to the employees on the retirement or termination of their employment, the claim stands clearly hit by Section 40A(7)(a).When the question of deductibility is a matter of dispute and being a pure question of law, on the facts found, the Court has the jurisdiction to consider the applicability of section 40A(7) too to the facts of the case. What was created was admittedly only a provision in the books of accounts, hence, not a fund or a contribution to a fund to be considered under Section 40A(9). The only other provision, which would hit the claim of the assessee herein would be section 40A(7). Thus, even though the assessee succeeds on the applicability of section 40A (9), the case of the assessee fails in view of section 40A(7).