section 36/income-tax act

[2005] 142 taxman 375 (Mad.)

High Court of Madras

Commissioner of Income-tax

v.

Kattabomman Transport Corpn. Ltd.

R. Jayasimha Babu and Mrs. A. Subbulakshmy, JJ.

Tax Case Nos. 779 and 780 of 1984

September 12, 1998

I. Section 36, read with section 2(38), of the Income-tax Act, 1961 - Approved superannuation fund, contribution towards - Whether for claiming deduction under section 36 read with section 2(38), a scheme should either be framed under the Employees’ Provident Funds Act, or should be approved by Commissioner under Income-tax Act - Held, yes - Whether a scheme which has been exempted from provisions of the Employees’ Provident Funds Act does not become a scheme framed under that Act and contribution towards such scheme cannot be allowed under section 36 - Held, yes

II. Section 37(1), read with section 36, of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessee-corporation claimed deduction under section 36 for contribution made by it towards provident fund maintained by Government on account of Government employees sent on deputation to assessee-corporation - Whether contribution made by assessee-corporation was part of amount payable by it to Government for availing of services of Government employees and fact that Government after receipt of amounts from corporation, chose to credit that amount to provident fund account of concerned employee of Government, did not render payment paid by corporation a contribution by corporation to provident fund maintained by Government for benefit of its employees - Held, yes - Whether, therefore, amount so paid to Government was not, in any way, deductible under section 36 but under section 37(1) being part of business expenditure of assessee - Held, yes

Facts-i

The assessee claimed deduction of certain amount paid as contribution to provident fund maintained by it. Claim for said deduction was made on ground that it had been exempted from the provisions of the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 for the scheme framed by it as the benefits available to the employees under that scheme were not less than those available under the provisions of the said Act. The first question relates to the deductibility of the amount paid as contribution to the provident fund maintained by the assessee which admittedly has not been recognised by the Commissioner of Income-tax, as the recognition of the fund either under the Act or under the Employees’ Provident Funds Act is a pre-condition for allowing any contribution to the provident fund as a deduction in view of section 2(38) of the Act and section 36 of the Act.

Held-i

Admittedly provident fund maintained by the assessee had not been recognised by the Commissioner, as the recognition of the fund either under the Act or under the Employees’ Provident Funds Act is a pre-condition for allowing any contribution to the provident fund as a deduction in view of section 2(38) and section 36. [Para 4]

Section 2(38) defines ‘recognised provident fund’ as meaning a provident fund which has been and continues to be recognised by the Chief Commissioner or Commissioner in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act. Section 36(1)(iv) permits the deduction or contribution made only to a recognised provident fund or an approved superannuation fund.

Under section 2(38), it is only a scheme framed under the Employees’ Provident Funds Act which is deemed to be an approved provident fund for the purpose of the Income-tax Act even though such a fund has not received the express approval of the Commissioner. [Para 5]

Further, the order granting exemption from the provisions of the Employees’ Provident Funds Act cannot be treated as an order recognising the scheme as one framed under that Act. The very object of exemption granted under section 17 of the Employees’ Provident Funds Act is to render the scheme immune from the application of the provisions of the Employees’ Provident Funds Act, subject to such conditions as may be prescribed while granting such exemption. [Para 6]

The scheme referred to in section 2(38) is a scheme either framed under the Employees’ Provident Funds Act, or a scheme approved by the Commissioner. The assessee’s claim did not answer either of the requirements for the assessment year in question. A scheme which has been exempted from the provisions of the Employees’ Provident Funds Act does not become a scheme framed under that Act. The words ‘under the Act’ clearly imply and require that the scheme is one which is subject to that Act. The scheme to which an Act is rendered inapplicable by virtue of exemption is not a scheme framed under the Act. [Para 7]

Facts-ii

The assessee claimed certain amount as deduction under section 36 on account of provision made for contribution towards the provident fund maintained by the Government on account of Government employees sent on deputation to the assessee-corporation.

Held-ii

The amount paid by the assessee to the Government in order to enable the Government to credit the amount so paid to the provident fund account of the Government employees who were at that point of time working in the corporation was part of the amount payable by the corporation to the Government for availing of the services of Government employees. The fact that the Government after receipt of the amounts from the corporation, chose to credit that amount to the provident fund account of the concerned employee of the Government, did not render the payment paid by the corporation a contribution by the corporation to the provident fund maintained by the Government for the benefit of its employees. The amount so paid to the Government was not in any way affected by section 36. The payment so made is deductible under section 37 being part of the business expenditure of the assessee. [Para 9]

Editor’s Note

1. Following the decision in Anna Transport Corpn. Ltd. v. CIT [1995] 215 ITR 800 (Mad.) it was held that amount paid by the assessee towards unexpired portion of the route permit was not a revenue expenditure, therefore, it would not be allowable as deduction under section 37(1).

2. Following the decision in CIT v. Cheran Transport Corpn. Ltd. [1996] 219 ITR 203/88 Taxman 228 (Mad.) it was held that payment made by the assessee to Chief Minister’s drought relief fund was an allowable deduction under section 37(1).

Cases referred to

Anna Transport Corpn. Ltd. v. CIT [1995] 215 ITR 800 (Mad.) [Para 10] and CIT v. Cheran Transport Corpn. Ltd. [1996] 219 ITR 203/88 Taxman 228 (Mad.) [Para 10].

C.V. Rajan for the Applicant. R. Meenakshisundaram for the Respondent.

Judgment

R. Jayasimha Babu, J. - There are two references before us one by the Revenue and the other at the instance of the assessee. Both the references relate to the assessments made for the year 1976-77 under the provisions of the Income-tax Act, 1961.

2. Two questions referred at the instance of the revenue are :

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 9,75,485 was allowable as a deduction with reference to the Employees’ Provident Funds Act, 1952, read with section 2(38) of the Income-tax Act, 1961 ?

2. Whether, on the facts and in the circumstances of the case, the provision made for contribution of Rs. 1,03,251 towards the provident fund maintained by the Government of Tamil Nadu on account of Government employees sent on deputation to the assessee-corporation is an allowable deduction in computing its income ?”

3. We shall consider the questions referred to us at the instance of the revenue before we proceed to consider the questions referred to us at the instance of the assessee.

4. The first question relates to the deductibility of the amount paid as contribution to the provident fund maintained by the assessee which admittedly has not been recognised by the Commissioner of Income-tax, as the recognition of the fund either under the Act or under the Employees’ Provident Funds Act is a pre-condition for allowing any contribution to the provident fund as a deduction in view of section 2(38) of the Act and section 36 of the Act.

5. Section 2(38) of the Act defines ‘recognised provident fund’ as meaning a provident fund which has been and continues to be recognised by the Chief Commissioner or Commissioner in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952 (Act 19 of 1952). Section 36(1)(iv) permits the deduction or contribution made only to a recognised provident fund or an approved superannuation fund.

Under section 2(38) of the Act, it is only a scheme framed under the Employees’ Provident Funds Act which is deemed to be an approved provident fund for the purpose of the Income-tax Act even though such a fund has not received the express approval of the Commissioner of Income-tax.

6. The assessee herein did not claim that fund to which contribution has been made was one set up under the scheme of the Employees’ Provident Funds Act. On the other hand, it sought exemption from the provisions of that Act for the scheme framed by it on the ground that the benefits available to the employees under that scheme were not less than those available under the provisions of the Employees’ Provident Funds Act. The order granting exemption from the provisions of the Act, cannot be treated as an order recognising the scheme as one framed under the Act. The very object of exemption granted under section 17 of the Employees’ Provident Funds Act is to render the scheme immune from the application of the provisions of the Employees’ Provident Funds Act, subject to such conditions as may be prescribed while granting such exemption.

7. The scheme referred to in section 2(38) of the Income-tax Act is a scheme either framed under the Employees’ Provident Funds Act, or a scheme approved by the Commissioner of Income-tax. The assessee’s claim does not answer either of these requirements for this assessment year. A scheme which has been exempted from the provisions of the Provident Funds Act does not become a scheme framed under that Act. The words under the Act clearly imply and require that the scheme is one which is subject to the Act. The scheme to which an Act is rendered inapplicable by virtue of exemption is not a scheme framed under the Act.

8. Our answer to the first question therefore is in favour of the revenue and against the assessee.

9. So far as the second question is concerned, that question has to be answered in favour of the assessee. The amount paid by the assessee to the Government in order to enable the Government to credit the amount so paid to the provident fund account of the Government employees who were at that point of time working in the Corporation, is part of the amount payable by the Corporation to the Government for availing of the services of Government employees. The fact that the Government after receipt of the amounts from the Corporation, chooses to credit that amount to the provident fund account of the concerned employee of the Government, does not render the payment paid by the corporation a contribution by the Corporation to the provident fund maintained by the Government for the benefit of its employees. The amount so paid to the Government is not in any way affected by section 36 of the Act. The payment so made is deductible under section 37 of the Act, being part of the business expenditure of the assessee. This question is therefore answered in favour of the assessee and against the revenue.

10. The questions referred to us at the instance of the assessee are :

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that a sum of Rs. 82,500 paid towards unexpired portion of the route permit was not a revenue expenditure ?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the payment of Rs. 3,50,000 to the Chief Minister’s Drought Relief Fund was not an allowable deduction ?”

The first of these questions is covered against the assessee by a judgment of this Court in the case of Anna Transport Corpn. Ltd. v. CIT [1995] 215 ITR 800 wherein, it was held that the amount paid towards unexpired portion of the route permit is not a revenue expenditure. Following that judgment and for the reasons stated therein, we answer this question against the assessee and in favour of the revenue.

The second question referred to us at the instance of the assessee is required to be answered in favour of the assessee in the light of the decision rendered by this Court in the case of CIT v. Cheran Transport Corpn. Ltd. [1996] 219 ITR 2031, wherein a similar donation was held to be an allowable deduction. Following that judgment and for the reasons stated therein, we answer the second question in favour of the assessee and against the revenue.

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