ITAT Kolkata Deletes Addition on Gratuity Fund Where Payments Exceed Interest Income
Background of the Dispute
The matter in Moran Tea Company (India) Ltd. Vs ITO came before the Kolkata Bench of the Income Tax Appellate Tribunal concerning Assessment Year 2017-18. The controversy centred around the assessee’s employees gratuity fund and the denial of exemption under Section 10(25)(iv) of the Income Tax Act 1961.
The Assessing Officer had taken the view that, since the assessee did not furnish the requisite approval certificate for its gratuity fund, the benefit available under Section 10(25)(iv) could not be allowed. Consequently, the Assessing Officer treated the interest income of the gratuity fund as taxable and made an addition.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)], NFAC, Delhi upheld the Assessing Officer’s action. The assessee then approached the ITAT Kolkata challenging the order of the CIT(A).
Parties and Representation
- The appeal was filed by Moran Tea Company (India) Ltd. against the order passed by the Commissioner of Income Tax (Appeals), NFAC, Delhi in Appeal No. CIT(A), Kolkata/10144/2019-20 dated 04.12.2025 for A.Y. 2017-18.
- Shri Soumitra Choudhary, Advocate appeared on behalf of the assessee.
- Shri Sandeep Lakra, Sr. DR appeared for the Revenue.
Core Issue Before the Tribunal
The fundamental question before the Tribunal was:
Whether, in the absence of production of the approval certificate of the gratuity fund under
Section 10(25)(iv), any taxable addition could still be sustained when the gratuity payments made to employees were higher than the interest income earned during the year?
The dispute thus involved two aspects:
- The technical requirement of approval of the gratuity fund for claiming exemption under
Section 10(25)(iv); and - The practical computation of income where the fund’s expenditure exceeded its income for the relevant year.
Assessee’s Submissions
Reference to Earlier Assessment Year
The assessee’s counsel highlighted that in the immediately preceding year, Assessment Year 2016-17, the same issue had arisen. In that year, the Coordinate Kolkata Bench of the ITAT in ITA No. 2265/Kol/2019 had not decided the matter against the assessee outright but had remanded the issue back to the Assessing Officer.
The Coordinate Bench had directed the Assessing Officer to provide the assessee with another chance to produce the approval certificate of the gratuity fund, indicating that the matter required reconsideration rather than an automatic denial of exemption.
By relying on this earlier order, the assessee argued that similar treatment should be afforded in the present Assessment Year 2017-18, or at least the facts relating to actual income and expenditure of the fund should be properly appreciated.
Financial Position of the Gratuity Fund for A.Y. 2017-18
The assessee drew the Tribunal’s attention to the Income & Expenditure Account of the gratuity fund for the year ended 31.03.2017. As per this account: