By TIOL News Service
CHENNAI, APRIL 14, 2018: THE issue before the bench was whether where an employee 'died in harness', can it be interpreted to mean that such employee passed away while in service, and not while on active duty. YES is the verdict. Pursuantly, the Court also held that in such case, any pension paid to heirs of such deceased employee, can be treated as business expense, even though the company may not have a pension policy, and where the pension was sanctioned by the company through a Board resolution.
Facts of the case
The assessee company was established in 1970. Since its inception, one person was employed with it, and he subsequently rose through the ranks to become Managing Director in the assessee company. However, in 1998, this person died 'in harness'. Considering his service record and contribution towards development of the assessee company, it decided to pay a monthly pension to his widow. This decision came inspite of the fact that the assessee company had no pension policy. Thus, such pension was started and it was treated as a step towards commerial expediency. On assessment during the relevant AY, the AO rejected such claims made by the assessee company. These findings were upheld by the CIT(A) but later reversed by the Tribunal. Hence the Revenue's appeal.
On hearing the matter, the High Court held that,
++ considering the order passed by the AO, it is seen that the AO failed to understand the meaning of the expression 'Dying in harness'. The AO has confused this expression with that of 'Dying in the course of employment'. The AO should have known that 'Died in Harness' would mean that a person dies while he was in service and does not mean that while on duty. This erroneous interpretation has led to an erroneous Assessment Order. Unfortunately, the CIT(A) also did not take note of the factual position that a resolution was passed by the assessee's Board and came to the conclusion that the payment given to the widow of Mr.K.R.Sundaram is purely discretionary and not a pension. The question would be whether the assessee's board could pass a resolution granting payment in the nature of pension to the widow or legal heirs of the employee as there should be a pension scheme in place for effecting such payment to treat such payment as business expenditure. This has been answered in CIT Vs. Lucas Indian Service Ltd;
++ considering relevant findings of the Bombay High Court in CIT Vs. Lucas Indian Service Ltd., in the present case also, there is a resolution, which has been passed by the Board of the assessee company recognizing the service rendered by Mr.K.R.Sundaram for over 30 years. The Commissioner of Income Tax (Appeals) while considering the decision in the case of Lucas Indian Service Ltd. , has made a hair-splitting exercise of the facts of the said case and sought to distinguish the judgment by observing that initially there was a resolution passed, which was modified by another resolution granting pensionary benefit to the employee and thereafter to his wife for a fixed period of 10 years. Unfortunately, the Commissioner of Income Tax has lost its sight that the ratio decidendi in the case of Lucas Indian Service Ltd. , is that it is sufficient that the company passes a resolution granting monetary benefit to the legal heir of a former employee and such resolution is sufficient even if the company does not have a pension scheme. The said resolution was taken into consideration and the claim by the Assessee therein that the payment made was business expenditure was accepted. Therefore, the reasons assigned by the Commissioner of Income Tax in not applying the decision in Lucas Indian Service Ltd. is not acceptable. Hence, the Tribunal order warrants no interference.
(See 2018-TIOL-698-HC-MAD-IT)
