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Issues: Whether the assessee's contribution to the employees' provident fund was allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922, read with section 10(4)(c), notwithstanding that the provident fund scheme was not recognised in the relevant year and the amount was credited in the books on mercantile basis.
Analysis: The recognition of the provident fund scheme under Chapter IX-A was held to be irrelevant to the allowance question, because the real issue was whether the contribution was an expenditure laid out wholly and exclusively for the assessee's business and whether the statutory bar in section 10(4)(c) applied. The Tribunal found that effective arrangements had been made to secure deduction of tax at source from payments out of the fund. On mercantile accounting, expenditure is incurred when the liability accrues, and the assessee had credited the trustees' account with the amount in the relevant year. Section 10(4)(c) was construed as a restriction on allowance, not as requiring actual cash payment to the fund. Section 418 of the Companies Act, 1956 was held to concern the mode of depositing fund moneys and not the time when business expenditure is incurred.
Conclusion: The contribution was an allowable deduction, and the assessee's claim succeeded.
Ratio Decidendi: Where an assessee maintaining mercantile accounts incurs an accrued liability towards employees' provident fund contribution and credits the trustees' account, the amount is deductible as business expenditure under section 10(2)(xv) if effective tax-deduction arrangements exist, and section 10(4)(c) does not require actual cash payment to the fund.
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