Sections 43B & 40A Income Tax Act | Which Provision Prevails When Both Commence With Non-Obstante Clause? Madras High Court Clarifies

The Division Bench of Justices Dr. Anita Sumanth and G. Arul Murugan stated that “the Rule that a general provision should yield to specific provision springs from the common understanding that when two directions are given one encompassing a large number of matters in general and another to only some, the latter directions should prevail as being more specific in nature.”

In this case, the appellant / assessee is engaged in the business of manufacturing and sale of specialty Chemicals and Biotechnology products. The assessment was taken up for finalization and completed vide an order.

One of the issues picked up for assessment relates to a provision made towards gratuity fund with the Life Insurance Corporation of India (LIC). The assessing officer notes that the claim had been made as per the provisions of Section 40(A)(7)(b) of the Act.

He was however of the view that though the narration in the schedules to the balance-sheet and profit and loss account stipulated that the amount was towards gratuity, it was only a provision.

Hence, the claim was hence hit by the provisions of Section 43B of the Act which requires certain claims to be allowed only on the basis of actual payment. The provision was thus disallowed and the amount was added back to total income.

In appeal before the Commissioner of Income-Tax Appeals (CIT(A)), assailing the aforesaid disallowances amongst others, the assessee adopted the stand that the provisions of Section 40(A)(7)(b) would override all other provisions of the Act including Section 43B, being a specific provision.

The CIT(A) allowed the appeal. The Revenue filed an appeal before the Income Tax Appellate Tribunal which was allowed.

The bench referred to a series of judgments of the Supreme Court dealing with preference to be accorded in the case of an interpretation involving two special provisions i.e. Sections 43B and 40A which commences with non obstante clauses.

The bench referred to the case Sarwan Singh and anr. v. KasturiLal [AIR 1997 SC 265] where the Supreme Court stated that, where both the enactments in question contain a non obstante clause and 'when two or more laws operate in the same field and each contains a non obtante 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'.

One of the parameters to determine priority of one legislation / provision over the other, is as to which was the later provision and the general understanding is that the later would prevail. However, in the case, the provisions of Section 40(A)(7), particularly clause (b) are specific to a claim of deduction based on a provision for payment towards an approved gratuity fund, stated the bench.

The bench found that the provisions of Section 40A(7) would override Section 43B if the assessee in question satisfies the stipulations under clauses (a) and (b) thereof.

The bench stated that “Had Section 43B also made reference to an approved gratuity fund, a conflict might have arisen. In the present circumstances, where Section 40(A)(7)(b) refers specifically to an approved gratuity fund and Section 43B, in generic terms, to a gratuity fund, we see no conflict in applying the provision of Section 40(A)(7)(b) in preference to Section 43B in the case of an approved gratuity fund.”

In view of the above, the bench allowed the appeal.

Case Title: M/s Sanmar Speciality Chemicals Limited v. The Assistant Commissioner of Income-Tax

Citation: 2025 LiveLaw (Mad) 131

Case Number: T.C.(A).No.493 of 2013

Counsel for Appellant/ Assessee: Vijayaraghavan

Counsel for Respondent/ Department: J. Narayanaswamy

Click Here To Read/Download The Order