2014 (1) TMI 251 - AT - Income Tax

Tribunal rules in favor of assessee, allowing deduction for payment to Karmachari Welfare Fund

Maharashtra State Warehousing Corporation Versus Deputy Commissioner of Income-tax

The Tribunal allowed the appeal in favor of the assessee, setting aside the disallowance of the payment made to Karmachari Welfare Fund under section ... Disallowance u/s 40A(9) of the Act – Payment made to karamchari welfare fund – Held that:- Following Maharashtra State Warehousing Corpn. Versus ACIT [2011 (8) TMI 328 - ITAT, Pune] -The Service Regulations framed by the appellant Corporation for the terms and conditions of employment and services of their employees carry a statutory force - the Maharashtra State Warehousing Corporation (Staff) Service Regulations have been framed with the previous sanction of the Government of the Maharashtra in exercise of the powers conferred by section 42 of the Warehousing Corporation Act, 1962 (58 of 1962) – thus, the contribution made by the appellant as an employer towards the Karmachari Welfare Fund falls within the expression 'as required by or under any other law' for the purposes of section 40A(9) of the Act – Order of the AO and CIT(A) set aside ant the AO is directed to allow the claim of deduction made by the assessee – Decided in faovur of Assessee. Issues:Disallowance of payment made to Karmachari Welfare Fund under section 40A(9) of the Income-tax Act, 1961.Analysis:The appeal was filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-I, Pune related to the assessment year 2006-07. The main ground raised by the assessee was the disallowance of payment made to Karmachari Welfare Fund under section 40A(9) of the Income-tax Act, 1961. The assessee, an undertaking of the Government of Maharashtra providing Warehousing facilities, contributed Rs. 18,61,700 towards MSWC Karmachari Welfare Fund and claimed it as business expenditure. The Assessing Officer disallowed the claim citing section 40A(9), which prohibits such deductions. The Commissioner of Income-tax (Appeals) upheld this decision, leading the assessee to appeal before the Tribunal.The Tribunal referred to its earlier order for the assessment years 2003-04 to 2005-06 where it allowed a similar claim by the assessee. It analyzed the provisions of section 40A(9) which disallow sums paid by the assessee as an employer to prescribed entities, subject to exceptions. The Tribunal considered whether the contribution to the Karmachari Welfare Fund falls under the exceptions provided in section 40A(9). It delved into the legal position explained by the Supreme Court in a similar case and concluded that the Service Regulations framed by the appellant Corporation carried a statutory force. The Tribunal found that the contribution made by the appellant towards the Karmachari Welfare Fund was 'as required by or under any other law,' thus not disallowable under section 40A(9).Based on the Tribunal's earlier decision in the assessee's own case and in the absence of contrary material, the Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and directed the Assessing Officer to allow the deduction claimed by the assessee. Consequently, the ground raised by the assessee was allowed, and the appeal was allowed in favor of the assessee. The judgment was pronounced on the 14th day of May 2013.This detailed analysis of the judgment highlights the interpretation of section 40A(9) of the Income-tax Act, 1961, the legal precedents considered, and the conclusion reached by the Tribunal in allowing the deduction claimed by the assessee.