2020 (4) TMI 859 - HC - Income Tax

High Court affirms deductions for National HVDC Project & Provident Fund, dismissing Revenue's appeal.

The High Court upheld the deductions allowed by the Tribunal for both the contribution to the National HVDC Project and the Provident Fund, dismissing the ... Deductibility under Section 37(1) - revenue expenditure versus capital/donation - Mandate of Electricity (Supply) Act, 1948 - obligation to subscribe to associations for development of electricity - Allowability under Section 36(1)(va) - employee contribution credited to provident fund on or before the due date - Effect of exemption from deposit with Provident Fund Commissioner and applicability of Provident Fund Regulations permitting deposit with PF TrustDeductibility under Section 37(1) - revenue expenditure versus capital/donation - Mandate of Electricity (Supply) Act, 1948 - obligation to subscribe to associations for development of electricity - Whether the contribution of Rs. 1.50 Crore to the National HVDC Project is allowable as a revenue expenditure under Section 37(1) of the Income Tax Act or is capital/donation in nature. - HELD THAT: - The Court upheld the findings of the CIT(A) and the Tribunal that the contribution was incurred in the ordinary course of the assessee's business and was wholly, necessarily and exclusively for the purpose of business. The contribution was made pursuant to Government of India directions and in conformity with Section 24 of the Electricity (Supply) Act, 1948, which authorised the Board to subscribe to associations conducive to development of electricity. The Assessing Officer had noted the project's purpose and the statutory power to subscribe but treated the payment as capital/donation without dealing with Section 24. In the absence of contrary material and given that the payment was to an organisation approved by the Government of India, the Court found no error in allowing the deduction under Section 37(1). [Paras 7]The addition of Rs. 1.50 Crore was correctly deleted and the contribution is allowable as a revenue deduction under Section 37(1).Allowability under Section 36(1)(va) - employee contribution credited to provident fund on or before the due date - Effect of exemption from deposit with Provident Fund Commissioner and applicability of Provident Fund Regulations permitting deposit with PF Trust - Whether the deletion of the addition of Rs. 24,25,05,585 on account of provident fund contributions not deposited by the due date was justified under Section 36(1)(va). - HELD THAT: - Section 36(1)(va) mandates that employer-credit of employees' contributions to the relevant fund on or before the due date is a condition for deduction. The Court accepted that the assessee had exemption from depositing with the Provident Fund Commissioner and was permitted to deposit with its PF Trust. Regulation 11 of the applicable PF Regulations provides no specific date for deposit and contemplates that amounts may remain invested with the Board and credited with interest. The Court relied on earlier decisions involving identical facts (including a Division Bench decision and the Assessing Officer's earlier order for another year) and found no reason to take a different view. In these circumstances the deletion of the addition was sustained. [Paras 9]The deletion of the addition relating to provident fund contributions was justified and the deduction under Section 36(1)(va) was properly allowed.Final Conclusion: Both substantial questions raised by the Revenue were answered against it: the Rs. 1.50 Crore contribution to the National HVDC Project was deductible as revenue expenditure under Section 37(1) in view of statutory obligation under the Electricity (Supply) Act, 1948 and government approval; and the provident fund contribution addition was rightly deleted because the assessee, exempted to deposit with the PF Commissioner and governed by PF Regulations allowing deposit with its Trust without a specific due date, satisfied the conditions for deduction under Section 36(1)(va). The appeal is dismissed. Issues:1. Deduction of contribution to National H.V.D.C. Project under section 37(1) of the Income Tax Act.2. Deletion of addition of Provident Fund not paid on due date under section 36(1)(va).Issue 1: Deduction of contribution to National H.V.D.C. Project under section 37(1) of the Income Tax Act:The Revenue filed an appeal against the order passed by the Income Tax Appellate Tribunal regarding the deduction of Rs. 1.50 Crores on account of contribution to the National HVDC Project for the assessment year 1994-95. The Revenue argued that the contribution was capital in nature and not related to the day-to-day business operations, thus not falling under Section 37(1) of the Act. However, the Tribunal upheld the deduction, stating that the contribution was made to an organization approved by the Government of India and was necessary for the business. The Court agreed with the Tribunal, emphasizing that the expenditure was incurred in the ordinary course of business and as an obligation to develop electricity, as per Section 24 of the Electricity Act. The Court found no error in allowing the deduction, as it was not a voluntary donation but a specific direction from the Government of India.Issue 2: Deletion of addition of Provident Fund not paid on due date under section 36(1)(va):The Revenue also challenged the deletion of the addition of Rs. 24,25,05,585/- of Provident Fund which was not paid on the due date under Section 36(1)(va) of the Act. The Revenue argued that since the assessee did not deposit the amount with the P.F. Trust within the due date, the deduction was not admissible. However, the Court noted that the assessee had an arrangement to deposit the money with the P.F. Trust as per their own Provident Fund rules and regulations, where payments were made regularly on an ad hoc basis. Referring to Regulation 11 of the PF Regulations, the Court found that there was no specific date for deposit mentioned. Relying on previous judgments and the Division Bench's decision, the Court dismissed the Revenue's appeal, stating that there was no illegality or perversity in the impugned order, and no case was made out in favor of the Revenue.In conclusion, the High Court upheld the deductions allowed by the Tribunal for both the contribution to the National HVDC Project and the Provident Fund, dismissing the Revenue's appeal and affirming the impugned order.