JUDGMENT
G. Sivarajan, J.
These two appeals are filed by the Commissioner (Appeals), Calicut, against two separate orders of the same date, 8-4-1999, passed by the Tribunal, Cochin Bench in ITA Nos. 128 & 151/Coch/1995 in respect of the assessment year 1991-92 and in ITA Nos. 205/Coch/1995 in respect of the assessment year 1990-91 in the case of the very same assessee who is the respondent in both these cases. The matter arises under the Income Tax Act, 1961 (hereinafter referred to as the Act). Since common questions of law are involved in both these cases they are disposed of by this common judgment.
2. In ITA No. 7 of 2000 the appellant had formulated three questions of law and this court ordered notice on the following three questions :
“1. Whether, on the facts and in the circumstances of the case and also in view of the fact that remittance had not been made before the due date, the assessee is entitled to claim deduction of the sum of Rs. 11,25,965 as gratuity premium?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the provisions of section 43B are not applicable in respect of claim for the deduction of premium payable towards gratuity to which section 40A(7)(b) applies?
3. Whether, on the facts and in the circumstances of the case and in the light of the section 43B, a provision towards the contribution to an approved gratuity fund is allowable under section 40A(7)(b) of the Income Tax Act?”
3. Similarly in ITA No. 37 of 2000 the appellant had raised the following six questions and this court had ordered notice on all those questions
“1. Whether, on the facts and in the circumstances of the case and also in view of the fact that remittance had not been made before the due date, the assessee is entitled to claim deduction of the sum of Rs. 9,714 as gratuity premium?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the provisions of section 43B are not applicable in respect of claim for the deduction of premium payable towards gratuity to which section 40A(7)(b) applies?
3. Whether, on the facts and in the circumstances of the case and in the light of the section 43B, a provision towards the contribution to an approved gratuity fund is allowable under section 40A(7)(b) of the Income Tax Act?
4. Whether, on the facts and in the circumstances of the case and on an interpretation of section 43B read with Explanation to clause (va) of section 36, the assessee is entitled to claim deduction of the contribution to the ESI fund for the assessment year 1990-91 on actual payment basis if the payment was not made before the due date as defined in the Explanation to section 36(1)(va)?
5. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the due date as defined in the Explanation to clause (va) of section 36 has application only in respect of any sum received by the assessee as contribution to the provident fund, ESI, etc. which the assessee as employer has to remit to the respective account?
6. Whether, on the facts and in the circumstances of the case, the assessees claim for deduction is to be considered under section 43B(b) without reference to the second proviso?”
4. However, essentially the questions of law raised in both these appeals are with regard to the claim for deduction of a provision towards the contribution to an approved gratuity fund. However, in ITA No. 37 of 2000 there is one more question with regard to the claim for deduction of the contribution to the ESI fund. So far as the claim for deduction of the provision towards the contribution to the approved gratuity fund, according to the assessee, it is an allowable deduction in view of the provisions of section 40A(7)(b) of the Act. But, according to the department, the deduction is subject to the provisions of section 43B as per which the deduction is allowable only if the gratuity is paid within the due date for payment provided under the Payment of Gratuity Act or under the Contract Act. Here, it must be noted that both section 40A(7) and section 43B have used the expression notwithstanding. Therefore, the question to be decided, in this, case, is as to which of these two provisions has got an overriding effect. If section 40A(7) is subject to section 43B the deduction of the provision towards the contribution to the approved gratuity fund cannot be allowed unless there is actual payment, that too within the due date provided there is a due date for such payment. On the other hand, if notwithstanding the provisions of section 43B, section 40A(7)(b) has got an overriding effect then, subject to fulfilment of the conditions specified in section 40A(7)(b), the provision is an allowable deduction.
5. The brief facts are as follows : The respondent-assessee is a limited company engaged in manufacturing tiles, ridges, etc. The assessment years concerned, as already noted, are 1991-92 and 1990-91, the relevant previous year ended 31-3-1991 and 31-3-1990, respectively. Since the detailed reasons so far as the questions involved in both these cases are dealt with in the orders for the assessment year 1991-92 which is the subject-matter of ITA No. 7 of 2000, the facts of the said appeal is mentioned first. For the assessment year 1991-92 previous year ended 31-3-1991 the respondent-assessee filed a return of income on 30-12-1991 admitting therein a net loss of Rs. 5,10,532. Subsequently, a revised return was filed on 8-5-1992 admitting a net loss of Rs. 8,45,400. The case was selected for scrutiny and a notice under section 143(2) of the Act was issued and, after affording opportunity to the petitioner, the assessment was completed. In the said assessment the assessing officer disallowed the claim for deduction of a sum of Rs. 11,25,965 being contribution towards group gratuity-cum-life insurance premium which is covered by section 43B of the Income Tax Act. The assessing officer after conducting enquiry with the LIC authorities ascertained that a sum of Rs. 11,25,965 was due to be paid by the assessee on 1-10-1990 and by availing the grace period of 30 days the assessee-company should have paid the said premium to the LIC on or before 30-10-1990 and on verification of the details, it was found that the assessee had paid the said sum only on 7-6-1991 and on 25-10-1991. Accordingly to the assessing officer, since the said amounts were not paid on the due date provided under section 43B read with section 36(va) Explanation the same is not to be allowed as deduction. The assessing officer also relied on the Board Circular No. 550 issued in the year 1989.
6. Similarly for the assessment year 1990-91 the original assessment under section 143(3) was completed on 20-1-1993. This was reopened under section 147 of the Act. In response to notice under section 148 the assessee furnished a return of income on 20-5-1994 admitting a loss of Rs. 87,250. Though the assessment was reopened mainly for the purpose of predetermining the capital gains based on the value of the landed properties, in the reassessment proceedings the assessing officer also considered the disallowance in respect of ESI payments amounting to Rs. 12,712 paid not on due date. According to the assessing officer the said amount ought to have been paid on or before 20-4-1989 but was actually paid on 8-5-1989 only. Hence, the said sum was disallowed under section 43B. In the recomputation of total income a sum of Rs. 9,714 being the provision for payment to the gratuity fund originally allowed was also included.
7. The assessee being aggrieved by the assessment orders for the years 1991-92 and 1990-91 filed appeals before the Commissioner (Appeals), Calicut. The said appeals were disposed of by the appellate authority by two separate orders dated 28-11-1994 for the assessment year 1991-92 and order dated 23-12-1994 for the assessment year 1990-91. The first appellate authority took the view that a sum of Rs. 11,12,965 being the premium payable to the LIC under the group gratuity-cum-life insurance premium for the year ended 31-3-1991 is liable to be deducted. According to the first appellate authority no due date has been prescribed under section 36(1)(v) as contrasted with section 36(1)(va) read with section 2(xxiv) and section 43B. In appeal filed by the department against the said order the Tribunal considered the question as to whether the assessee had paid the premium within the due date prescribed under Explanation below clause (va) of sub-section (1) of section 36 with reference to the policy under the group gratuity scheme produced by the assessee. The Tribunal found that under the policy the premium was payable before 30-3-1990 and that since the remittances were made only on 7-6-1991 and 25-10-1991 it was held that the Commissioner (Appeals) was not correct in stating that the remittance had been made before the due date under the group gratuity scheme. The Tribunal then considered the question whether in such a case the non-payment of the premium within the accounting year can be a ground for disallowance by invoking section 43B. The Tribunal relying on a decision of the Jaipur Bench of the Tribunal in Mewar Sugar Mills Ltd. v. Dy. CIT (1998) 65 ITD 163 (Jp)(TM) held that the provisions of section 43B are not applicable in respect of the claim for deduction of premium payable towards gratuity to which section 40A(7)(b) applies. The Tribunal accordingly held that the assessing officer was not correct in making the disallowance under section 43B in respect of the provisions for the purpose of payment under the gratuity scheme. The Tribunal accordingly upheld the order of the Commissioner deleting the disallowance for the reason that section 43B could not be applied in a case of deduction claimed under section 40A(7)(b).
8. The first appellate authority in the appeal for the year 1990-91 held that there is no time-limit for payment of premium on policy under the group gratuity scheme as in the case of contribution to provident fund or for other funds for the welfare of the employees and it is enough if the premium is paid before the due date for filing the return of income in order to claim the deduction and that since the premium was paid on 9-8-1990, i.e., before the due date for filing return the disallowance was not justified. The first appellate authority also noted that for the assessment year 1991-92 he had deleted the additions for that year. So far as the disallowance of a sum of Rs. 12,712 under section 43B in respect of ESI contribution it was noted that the said sum was paid during the relevant previous year on 8-5-1989 and the contribution was claimed as a deduction in the year in which it was paid. The first appellate authority has held that in view of the fact that the payment had been made during the accounting year relevant to the assessment year 1990-91 the question of applying the provisions of section 43B does not arise. The Tribunal considered this issue in para 4 of the appellate order. The Tribunal noted that the assessing officer disallowed the claim for the amount payable under the group gratuity scheme for the reason that the amount was not actually remitted before the due date since the payment is seen made only on 9-8-1990 after the end of the previous year. The Tribunal relying on its own order in the case of the assessee for the year 1991-92 upheld the order of the Commissioner (Appeals) and dismissed the revenues appeal. The claim for deduction of ESI contribution of Rs. 12,712 was considered in para 5 of the appellate order. The Tribunal noted that the assessee had paid the said amount on 8-5-1989 during the relevant previous year, but the assessing officer was of the view that the payment was not made before the due date as defined in the Explanation below section 36(1)(va) and so the same was to be disallowed under section 43B. The Tribunal noted the contention of the revenue that the ESI payment was for the welfare of the employees and the same would fall under clause (b) of section 43B. The Tribunal after adverting to the Explanation to section 36(1)(va) and the provisions of section 2(xxiv)(x) observed that it is clear from the Explanation that the definition of due date as appearing in the Explanation is for the purpose of clause (va) only and that from a reading of section 43B with the said Explanation, it is clear that the second proviso imposes a condition of payment before the due date only in respect of any sum received by an assessee from its employees to which the provisions of section 2(xxiv)(x) apply. The Tribunal noted that in the present case contribution to ESI which the assessee has to make was as an employer and not the contribution of the employees and therefore, the claim for deduction of such contribution should be considered under section 43B(b) de hors the second proviso. The Tribunal held that since the assessee had paid the contribution before the end of the previous year, the assessee. is eligible for deduction on the basis of the actual payment.
9. Thus, as already noted, two issues arise for consideration, one with regard to the provision made for payment to the approved gratuity fund and the other regarding the claim for deduction of the contribution to the ESI fund on actual payment basis.
10. Let us now deal with the first issue. The assessee has claimed a deduction of Rs. 11,25,965 being contribution towards group gratuity-cum-life insurance premium in the assessment for the year 1991-92 and a sum of Rs. 9,714 for the assessment year 1990-91. Under section 36(1)(v) of the Act any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund credited by him for the exclusive benefits of the employees under an irrevocable trust is an allowable deduction. Similarly provision made in the profit & loss account for the estimated present value of the contingent liability properly ascertained and discounted on an accrued basis as falling on the assessee in the year of account could be deducted either under section 28 or under section 37 of the Act as observed by the Supreme Court in Shree Sajjan Mills Ltd. v. CIT & Anr (1985) 156 ITR 585 (SC). However, section 40A of the Act provides for expenses or payments not deductible in certain circumstances. Sub-section (7)(a) provides that subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. Clause (b) provides that nothing in clause (a) shall apply in relation to (i) any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity that has become payable during the previous year. The case of the assessee is that by virtue of clause (b)(i) of sub-section (7) of section 40A the provision for contribution to the approved gratuity fund is an allowable deduction. This requires detailed consideration.
11. The stand of the revenue, as already noted, is that notwithstanding the provisions of section 40A(7)(b) of the Act, in view of the provisions of section 43B of the Act, unless the gratuity amount is paid within the due date no deduction of the contribution to the approved gratuity fund can be allowed. Let us now see the provisions of sections 40A(7) and 43B of the Act.
12. Section 40A(1) and 7(a) and (b)(i) reads as follows
“40A. Expenses or payments not deductible in certain circumstances.(1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head “Profits and gains of business or profession”.
(7)(a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason;
(b) Nothing in clause (a) shall apply in relation to
(i) any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year.”
13. Section 43B of the Act excluding Explnations. 3 and 4 reads as follows :
“43B. Certain deductions to be only on actual payment.Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of
(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or
(b) any sum payable by the assesses as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or
(c) any sum referred to in clause (ii) of sub-section (1) of section 36, or
(d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State Financial Corporation or a State Industrial Investment Corporation in accordance with the terms and conditions of the agreement governing such loan or borrowing,
shall be allowed (irrespective of the previous years in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :
Provided that nothing contained in this section shall apply in relation to any sum referred in clause (a) or clause (c) or clause (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return..
Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date.
Explanation 1.For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1-4-1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.
Explanation 2.For the purposes of clause (a), as in force at all material times, “any sum payable” means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law.”
14. In view of the second proviso it is necessary to refer to the Explanation below clause (va) of sub-section (1) of section 36
“ExplanationFor the purposes of this clause, “due date” means the date by which the assessee is required as an employer to credit an employees contribution to the employees account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.”
15. Here, it must be noted that section 40A(7) was introduced for the first time by the Finance Act, 1975 (Act 25 of 1975) with retrospective effect from 1-4-1973 and section 43B was introduced by the Finance Act, 1983 (Act 11 of 1983) with effect from 1-4-1984. Section 40A says that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head “profits and gains of business or profession”. Similarly it must be noted that section 43B opens with a non obstante clause which provides that notwithstanding anything contained in any other provisions of this Act.
16. The scope of section 40A(7) of the Act was considered by the Supreme Court in Shree Sajjan Mills Ltd.s case (supra) reading as follows :
“Section 40A is in Chapter IV which deals with computation of total income. It is under the sub-heading of a group of sections dealing with the computation of profits and gains of business or profession. The said group of sections begin with section 28 and go up to section 40D. Section 40A is with the marginal note under the heading “Expenses or payments not deductible in certain circumstances”. If the marginal note or heading is any indication, and it certainly is a relevant factor to be taken into consideration in construing the ambit of the section, then these payments mentioned therein are not deductible, according to the statute, in certain circumstances. Therefore, the heading of this section is a clear indication that certain payments and expenses which would be otherwise deductible would not be deductible except in certain circumstances indicated in the section. This is abundantly made clear by the non obstante expression used in sub-section (1) of section 40A. As noted before, the provisions of section 40A shall have effect notwithstanding anything to the contrary contained in any other provision of the Act. Payments of deductions or provision for deduction could have been eligible for deduction or could have been deducted either under section 28 or under section 37 of the Act. But the use of the non obstante expression makes it clear that if there is any legislative base dealing with the provision for gratuity, then the same would be applicable inspite of and notwithstanding any other provision of the Act. Read with the marginal notes of section 40A, the non obstante clause of sub-section (1) of section 40A has an overriding effect over the provisions of any other section by providing that the provisions of the section will have effect notwithstanding anything to the contrary contained in any other provision relating to the computation of income under the head “Profits and gains of business or profession”. Expenditure or allowances which are deductible under any other provision relating to the head “Business or profession” will be disallowed in cases to which these provisions of the section apply. This sub-clause was inserted by the Finance Act, 1975, with retrospective effect from 1-4-1973″.
17. The Supreme Court also observed that the intention of the legislature in enacting the provision of section 40A(7) would be apparent from the notes on clauses of the amendment where in para 46, after referring to the provisions of section 37(1) and section 36(1)(v) of the Act, it was observed, inter alia, as follows :
“A reading of these two provisions clearly shows that the intention has always been that deduction in respect of gratuities should be allowed either in the year in which the gratuity is actually paid or in the year in which contributions are made to an approved gratuity fund. A doubt has been expressed that the relevant provisions, as presently worded, do not secure the underlying objective and that a provision made by a taxpayer in his accounts in respect of estimated service gratuity payable to employees will be deductible in, computing the taxable income in a case where the provision has been made on a scientific basis in the form of an actual valuation. In order to remove uncertainty in the matter, it is proposed to specifically provide in the law that no deduction will be allowed in the computation of profits and gains of a business or profession, in respect of any reserve created or provision made for the payment of gratuity to the employees on retirement or on termination of employment for any reason. This restriction will, however, not apply in relation to a provision made for the purpose of payment of a sum by way of contribution towards an approved gratuity fund that has become payable during the relevant year, or for the purpose of meeting actual liability in respect of payment of gratuity to the employees that has arisen during such year”.
18. The Supreme Court thereafter observed thus :
“On a plain construction of clause (a) of sub-section (7) of section 40A of the Act, what it means is that whatever is provided for future use by the assessee out of the gross profits of the year of account for payment of gratuity to employees on their retirement or on the termination of their services would not be allowed as deduction in the computation of profits and gains of the year of account. The provision of clause (a) was made subject to clause (b). The embargo is on deductions of amounts provided for future use in the year of account for meeting the ultimate liability to payment of gratuity. Clause (b)(i) excludes from the operation of clause (a) contribution to an approved gratuity fund and amount provided for or set apart for payment of gratuity which would be payable during the year of account. Clause (b)(ii) deals with a situation where the assessee might provide by the spread-over method and provides that such provision would be excluded from the operation of clause (a) provided the three conditions laid down by the sub-clauses are satisfied.
19. Of course the Supreme Court in the said decision did not consider the effect of the provisions of section 43B inserted by the Finance Act, 1983 with effect from 1-4-1984, for, the assessment years concerned in the said case were 1973-74 and 1974-75.
20. Now, it would appear that there is conflict between the provisions of section 40A(7)(b) and section 43B insofar as both the provisions used the non obstante clause. It is significant to mention here that section 40A(7) was there in the Act when section 43B was inserted and even prior to 1-4-1984 from which date section 43B is given effect to. Thus, the question would be which of the two sections has got the overriding effect. The Calcutta High Court in CIT v. Sree Makakhya Tea Co. (P) Ltd. (1993) 199 ITR 714 (Cal) took the view that the provisions of section 43B have got the overriding effect over the provisions of section 40A(7). According to the Calcutta High Court after the insertion of section 43B the provisions of section 40A(7) have no application and that, unless the conditions of section 43B are satisfied, the deduction cannot be allowed. In this context, it is also relevant to note that the Gauhati High Court in George Williamson (Assam) Ltd. v. CIT (1997) 228 ITR 343 (Gau) has taken the view that notwithstanding section 43B(b) in view of section 40A(7)(b)(i) it is not necessary that actual payment has to be made and that it is sufficient that the amount is earmarked for such payment.
21. Here, it must be noted that section 43B introduced by the Finance Act, 1983 with effect from 1-4-1984 provides that certain deductions are to be allowed only on actual payment. It deals with 5 categories of deductions. Clause (a) deals with any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force. Clause (b) deals with any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees. Clause (c) deals with any sum referred to in clause (ii) of sub-section (1) of section 36. Clause (d) deals with any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing. Clause (e) deals with any sum payable by the assessee as interest on any term loan from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan. In respect of all those amounts section 43B says that it shall be allowed only in computing the income referred to in section 28 of that previous year in which the sum is actually paid by him. The first proviso deals with payments covered by clauses (a), (c), (d) or clause (e) with respect to which it is said that if the said amounts are actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and evidence of such payment is furnished by the assessee along with such return. The second proviso says that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36. The Explanation refers to the due date which means the date by which the assessee is required as an employer to credit the employees contribution to the employees account in the relevant fund under any act, rule or order or notification issued thereunder or under any standing order, award, contract of service or otherwise.
22. The present case is covered by clause (b) of section 43B. Whether the second proviso and the Explanation to clause (va) of sub-section (1) of section 36 has application is also an issue.
23. A Division Bench of this court had occasion to consider the scope of section 43B read with section 36(1)(va) Explanation in CIT v. South India Corpn. Ltd. (2000) 242 ITR 114 (Ker). That was a case regarding payment towards provident fund. The Division Bench considering the scope of the proviso to section 43B of the Act observed in the following terms : section 43B is relatable to payments actually made, the modality to be adopted in respect of payments of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees for getting deduction has been prescribed and a time-limit has been fixed and, only if payment was made during that period, deduction can be claimed. The proviso to section 43B lays down that the payment should be made before the “due date as defined in the Explanation below clause (va) of sub-section (1) of section 36”. The expression “due date” means the time stipulated for payment and by virtue of the Explanation, “due date” means the date by which the assessee is required as an employer to credit an employees contribution to the employees account in the relevant fund and the amount is deductible only if the assessee credits the amount to the employees account in the relevant fund on or before the date by which he is legally or contractually required to do so. The right to deduction would be lost if the sum is credited after the due date. It is also observed that the legislature in its wisdom has incorporated the proviso and it cannot be said to be without a purpose.
24. Now, from the above discussion, the following aspects are clear : section 40A would have effect notwithstanding anything contained in sections 30 to 39. Hence, for gratuity to be deductible under the Act, it must fulfil the conditions laid down in section 40A(7). The deduction cannot be allowed on general principles or under any other section of the Act because sub-section (1) of section 40A makes it clear that the provisions of the section shall have effect notwithstanding anything to the contrary contained in any other provision of the Act relating to the computation of income under the head “Profits and gains of business or profession”. Section 40A(7) says that no deduction is to be allowed, in the computation of the profits and gains of a business or profession, in respect of any provision made for the payment of gratuity to the employees on retirement or on termination of employment. Exception is provided under clause (b)(i) which says that the restriction is not to apply in relation to any provision made for the purpose of payment of a sum by way of contribution towards an approved gratuity fund that has become payable during the previous year or for the purpose of meeting actual liability in respect of payment. Thus, but for the provisions of section 43B enacted, the assessee would have been entitled to deduction of the provision for gratuity by virtue of section 40A(7)(b)(i) of the Act subject to fulfilment of the conditions specified therein. Section 43B introduced subsequent to the introduction of the provisions of section 40A(7) clearly provides that notwithstanding anything contained in any other provisions of this Act (which will clearly take in section 40A(7) also) a deduction otherwise allowable under this Act in respect of any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees shall be allowed irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him only on computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. This provision, it would appear, has the effect of taking away the provisions of section 40A(7)(b)(i) also. Thus, by virtue of this provision the benefit of deduction of gratuity payment towards the fund can be obtained only in the year in which the payment is effected to the said fund irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him.
25. If the second proviso to section 43B which deals with a situation covered by clause (b) of the said section is applicable then by virtue of the Explanation to section 36(1)(va) of the Act the payment should be made on or before the due date for payment of the contribution to the approved gratuity fund fixed in the contract of insurance. A Division Bench of this court in CIT v. South India Corporation Ltd. (supra), which we have already referred to, had held as follows :
“The expression due date means the time stipulated for payment. As per the Explanation to clause (va) for the purpose of the clause, due date means the date by which the assessee is required as an employer to credit an employees contribution to the employees account in the relevant fund. The amount is deductible only if the assessee credits the amount to the employees account in the relevant fund on or before the date by which he is legally or contractually required to do so. The right to deduction would be lost even if the sum is credited after the due date. It cannot be an indefinite date left to the choice of the assessee. It is to be noted that under the main provision of section 43B of the Act, the payments made during the currency of the financial year relevant to the assessment year qualify for deduction in certain cases. But in the case of payments relating to provident fund, etc., stress has been made on payment within the due date. Therefore, it cannot be said that payment made beyond the due date also qualifies for deduction, in view of the prescription in the main provision itself. Had that been the legislative intent, there was no necessity to enact the proviso. The legislature in its wisdom has incorporated the proviso and it cannot be said to be without a purpose. There is nothing repugnant between the main provision and the proviso. They operate in different situations. The view of the Tribunal that payment having been made before the close of the financial year, qualifies for deduction is indefensible”.
26. Another Division Bench to which one of us (Sivarajan, J) was a party in the judgment dated 10-10-2002 in ITA No. 92 of 2000 considered the contention on behalf of the assessee that the aforesaid decision does not apply to the case of payment of employers contribution as the Explanation to section 36(va)(i) read with section 2(24)(x) of the Act refers to the employees contribution to the employees account in the relevant fund and not to the employers contribution. The Division Bench after noting the aforequoted portion of the judgment in South India Corpn. Ltd.s case held that the said decision squarely applies to the case on hand without any distinction. This decision was followed by another Division Bench in CIT v. Jairam & Sons (2004) 187 CTR (Ker) 199. In the light of the above two decisions it is clear that the second proviso to section 43B read with the Explanation to section 36(1)(va) applies to a claim for deduction of gratuity premium also. In the instant case, the assessee admittedly did not make payment to the approved gratuity fund either during the previous year relevant to the assessment years concerned as also within the due date fixed for payment of the gratuity premium by the LIC. Thus, if section 43B of the Act is held to be applicable to the instant case by virtue of the provisions of section 43B(b) read with the second proviso thereto and Explanation to section 36(1)(va), the petitioner will not be entitled to get the benefit of deduction of the provision made for payment to the approved gratuity fund in the aforesaid two years. Having regard to the fact that section 43B was enacted subsequent to the enactment of section 40A(7) covering the same field ordinarily the later provision containing a non obstante clause will have to be given precedence over the earlier provision containing a non obstante clause. Let us see whether there is any exception to this rule..
27. A three Judges Bench of the Supreme Court in Sarwan Singh v. Kasturi Lal AIR 1977 SC 265 in the context of the Delhi Rent Control Act and the Slum Areas (Improvement and Clearance) Act where with reference to both the enactments containing non obstante clauses. it was observed that “when two or more laws operate in the same field and each contains a non obstante clause stating that its provisions will override those of any other law, stimulating and incisive problems of interpretation arise. Since statutory interpretation has no conventional protocol, case of such conflict has to be decided in reference to the object and purpose of the laws under consideration”. It was also observed that “one other test may also be applied though the persuasive force of such a test is but one of the factors which combine to give a fair meaning to the language of the law. That test is that the later enactment must prevail over the earlier one”.
28. Another three Judges bench of the Supreme Court in R.S. Raghunath v. State of Karnataka & Ors. AIR 1992 SC 81 was concerned with the question whether sub-rule (2) of rule 3 of the Karnataka Civil Services (General Recruitment) Rules, 1977 has overriding effect over the Karnataka General Service (Motor Vehicles Branch) Recruitment Rules, 1976. The observations of the Supreme Court in Justiniano Augusto De Piedade Barreto v. Antonio Vicente Da Fonseca AIR 1979 SC 984 that “a law which is essentially general in nature may contain special provisions on certain matters and in respect of these matters it would be classified as a special law. Therefore, unless the special law is abrogated by express repeal or by making provisions which are wholly inconsistent with it, the special law cannot be held to have been abrogated by mere implication” was noted.
29. The court thereafter observed that there should be a clear inconsistency between the two enactments before giving an overriding effect to the non obstante clause but when the scope of the provisions of an earlier enactment is clear the same cannot be cut down by resort to the non obstante clause. On the said principle it was held that the amendment cannot be justified because there is a non obstante clause in rule 3(2) it cannot be interpreted that the said amendment to the general rules, though later in point of time, would abrogate the special rule the scope of which is very clear and which co-exist particularly when no patent conflict or inconsistency can be spelt out. The aforesaid view of Justice K. Jayachandra Reddy was endorsed by Justice Kuldip Singh though Justice Yogeshwar Dayal did not agree.
30. A Constitution Bench of the Supreme Court in Ashoka Marketing Ltd. v. Punjab National Bank AIR 1991 SC 855 was also concerned with two statutes, viz., Public Premises Act and the Rent Control Act enacted by the same legislature where the question as to whether the provisions of Public Premises Act override the provisions of the Rent Control Act where it was observed that the question as to whether the provisions of the Public Premises Act override the provisions of the Rent Control Act will have to be considered in the light of the principles of statutory interpretation applicable to laws made by the same legislature. Thereafter it was observed in para 50 of the judgment as follows :
“One such principle of statutory interpretation which is applied is contained in the latin maxim : leges posteriores priores contrarias abrogant (later laws abrogate earlier contrary laws). This principle is subject to the exception embodied in the maxim : generalia specialibus non derogant (a general provision does not derogate from a special one). This means that where the literal meaning of the general enactment covers a situation for which specific provision is made by another enactment contained in an earlier Act, it is presumed that the situation was intended to continue to be dealt with by the specific provision rather than the later general one (Benion : Statutory Interpretation pp. 433-34)”.
It was observed that the rationale of the above rule is explained by this court in J K Cotton Spinning & Weaving Mills Co. Ltd. v. The State of Uttar Pradesh AIR 1961 SC 1170 which reads as follows :
“The rule that general provisions should yield to specific provisions is not an arbitrary principle made by lawyers and Judges but springs from the common understanding of man and the common understanding of men and women that, when the same person gives two directions one covering a large number of matters in general and another to only some of them, his intention is that these latter directions should prevail as regards these while as regards all the rest the earlier directions should have effect”.
31. Again the Constitution Bench noted that the Supreme Court in UP. State Electricity Board v. Hari Shankar Jain AIR 1979 SC 65 observed as follows :
“In passing a special Act, Parliament devotes its entire consideration to a particular subject. When a general Act is subsequently passed, it is logical to presume that Parliament has not repealed or modified the former special Act unless it appears that the special Act again received consideration from Parliament”.
In determining whether a statute is a special or a general one, it was noted that the Supreme Court in Life Insurance Corporation v. D.J Bahadur AIR 1980 SC 2181 observed that focus must be on the principal subject-matter plus the particular perspective and for certain purposes, an Act may be general and for certain other purposes it may be special and the distinctions cannot be blurred when dealing with finer points of law. The Supreme Court then observed that the Public Premises Act is a later enactment whereas the Rent Control Act is an earlier enactment and that the Public Premises Act represents the later will of Parliament and should prevail over the Rent Control Act unless it can be said that the Public Premises Act is a general enactment, whereas the Rent Control Act is a special enactment and being a special enactment the Rent Control Act should prevail over the Public Premises Act.
32. We have already noted the provisions of section 40A(7) which provides that in cases covered by provisions of clause (a) no deduction shall be allowed in respect of any provision whether called as such or by any other name made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. However, clause (b) of section 40A(7) clearly provides that any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year, clause (a) will not apply. This means exception has been carved out in respect of payment of sums by way of any contribution towards an approved gratuity fund. Thus, it would appear that the legislature wanted to give a special treatment to a provision made by an assessee for the purpose of payment by way of any contribution towards an approved gratuity fund. This has to be treated as a special provision. In section 43B, the marginal note clearly says that “certain payments to be only on actual payment”. It deals with various items mentioned in para 21 supra. Section 43B(b), it must be noted, deals generally with any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees. Of course the gratuity fund is also referred. Here, it must be noted that even section 40A(7) provided that, notwithstanding any other provisions in the Act, provision for payment of gratuity cannot be allowed as a deduction. Section 43B(b), on the other hand, is a positive provision which says that deduction towards gratuity fund can be allowed only in computing the income referred to in section 28 of that previous year in which a sum is actually paid by him. Here, it must be noted that section 43B is a provision of general nature which denies the claim for deduction otherwise than by way of actual payment.
33. As already noted, section 40A(7) clause (b) particularly sub-clause (i) thereof is a special provision in regard to a claim for deduction based on a provision made for payment towards an approved gratuity fund. Going by the principles laid down by the Supreme Court in the decisions discussed above, we are of the view that there is no clear inconsistency between the two provisions, viz., section 40A(7) and section 43B. Section 40A(7) is in negative terms and section 43B is in positive terms, the effect of both these provisions is that in order to claim deduction in respect of payment to a gratuity fund there must be actual payment and that deduction cannot be allowed on the basis of any provision. The only exception to the above rule is with regard to the provision for payment to an approved gratuity fund. It cannot be interpreted that the later provision in section 43B by introducing the non obstante clause would abrogate the special provision with regard to provision made for payment to an approved gratuity fund contained in section 40A(7)(b)(i). This is all the more so since no patent conflict or inconsistency can be spelt out. Both the provisions can co-exist. A harmonious construction of the aforesaid two provisions would clearly indicate that the legislature never intended to take away the benefit conferred under clause (b) of section 40A(7) by the provisions of section 43B(b) of the Act.
34. Here, it must be noted that the Tribunal has adopted the aforesaid principle which was applied by the Jaipur Bench of the Tribunal in Mewar Sugar Mills Ltd. v. Dy. CIT (supra). We do not find any illegality in the decision taken by the Tribunal in the instant cases on the said issue. We are in full agreement with the view taken by the Tribunal.
35. Now coming to the question of deduction regarding contribution towards ESI fund, the Tribunal has held that the provisions of the proviso to section 43B and the Explanation to section 36(1)(via) of the Act has no application since the Explanation refers to the due date for payment of the employees contribution only and that in the instant case what is paid to the ESI is the employers contribution. The Tribunal has also noted that in the above circumstances it is the main part. of section 43B, viz., sub-clause (b) is applicable and that admittedly the assessee had remitted the ESI contribution within the previous year relevant to the assessment year 1990-91 itself and that the deduction is claimed based on payment. In view of our finding in para. 25 of this judgment with reference to the three earlier decisions of this court, particularly in South India Corpn. Ltd.s case (supra) we are unable to agree with the findings of the Tribunal that the second proviso to section 43B has no application to a case of employers contribution, cannot be sustained. Since the assessee did not pay the amount within the due dates notwithstanding the fact that the amounts were paid during the previous year relevant to the assessment year in issue, the same cannot be allowed as a deduction.
36. In the above circumstances, we answer questions 1 to 3 in both the appeals in the affirmative, i.e., in favour of the assessee and against the revenue. Questions 4 to 6 in ITA No. 37 of 2000 is answered in the negative, i.e., in favour of the revenue and against the assessee.
These two appeals are disposed of as above.
OPEN