1991 (6) TMI 49 - HC - Income Tax

Court Allows Deduction for Unrecognised Fund Contributions Under Income-tax Act

Commissioner Of Income-Tax Versus Aspinwall And Co. (Travancore) Limited

The court upheld the Tribunal's decision, allowing the deduction of contributions made by the assessee to the unrecognised Executive Staff Provident Fund ... Business Expenditure Issues:Interpretation of sections 36 and 37 of the Income-tax Act, 1961 regarding deduction of contributions made to an unrecognised Executive Staff Provident Fund.Analysis:The case involved questions regarding the entitlement of the assessee to claim deduction for contributions made to an unrecognised Executive Staff Provident Fund under sections 36 and 37 of the Income-tax Act, 1961. The assessee, a public limited company engaged in the manufacture and sale of coir products, claimed deductions for the assessment years 1978-79 and 1979-80. The Income-tax Officer disallowed the claim, stating that since section 36(1)(iv) provides for a specific deduction for contributions to a recognized provident fund, contributions to an unrecognised fund would not be eligible for deduction under section 37. However, the Commissioner of Income-tax (Appeals) and the Tribunal allowed the deduction under section 37, following previous decisions. The Executive Staff Provident Fund in question was unrecognised, and tax deductions were made by the trustees as required by law.The Revenue contended that deductions for provident fund contributions should only be claimed under section 36(1)(iv) and that the nature of the liability fell under section 36(1)(iv), precluding the assessee from claiming benefits under section 37(1). The Revenue relied on previous decisions to support its argument. However, the court referred to a judgment in a similar case and held that the assessee could claim deduction under section 37(1) even if not eligible under section 36(1)(iv). The court emphasized the residuary nature of section 37(1) and cited a Supreme Court decision affirming the same, rejecting the Revenue's contentions.The Revenue also argued that the contributions should be treated as capital expenditure under rule 14(1) of the Income-tax Act, 1961. However, the court clarified that this rule applied only when a provident fund was transferred to trustees, which did not occur in this case. Additionally, the Revenue's reliance on rule 14(2) was dismissed as the trustees had made arrangements for tax deductions, making the assessee eligible for exemption under section 37 for the relevant assessment years.Ultimately, the court upheld the Tribunal's decision to allow the deduction of contributions made by the assessee to the unrecognised Executive Staff Provident Fund. The questions were answered in favor of the assessee, directing each party to bear their respective costs in the tax referred cases.