2021 (9) TMI 554 - HC - Income Tax

Court affirms superannuation fund contributions as business expenditure under Income Tax Act

The High Court upheld the Tribunal's decision in favor of the assessee, allowing the contribution to the superannuation fund as business expenditure under ... Contribution made towards superannuation fund - Whether allowable business expenditure u/s 37? - Is not the finding of the Tribunal bad by directing the AO to allow expenditure under Section 37 when the assessee failed to obtain necessary approval from the competent authority viz., Principal Commissioner of Income Tax for the year under consideration and the deduction falls squarely within the ambit of Section 36(1)(iv) r/w. Section 40A(9)? - HELD THAT:- As decided in own case [2020 (10) TMI 798 - MADRAS HIGH COURT] similar question has been decided by the Division Bench of this Court on identical facts in the case of Commissioner of Income Tax v. Kattabomman Transport Corporation Limited [1998 (9) TMI 2 - MADRAS HIGH COURT] - Decided in favour of assessee. Issues Involved:1. Whether the contribution made towards the superannuation fund is allowable as business expenditure under Section 37 of the Income Tax Act.2. Whether the Tribunal's direction to allow expenditure under Section 37 is valid when the assessee failed to obtain necessary approval from the Principal Commissioner of Income Tax for the year under consideration, and the deduction falls within the ambit of Section 36(1)(iv) read with Section 40A(9).Issue-wise Detailed Analysis:1. Allowability of Contribution to Superannuation Fund as Business Expenditure under Section 37:The primary issue in this case was whether the contribution made towards the superannuation fund by the assessee could be treated as business expenditure allowable under Section 37 of the Income Tax Act. The Tribunal had previously decided in favor of the assessee, relying on the case of Commissioner of Income Tax v. Kattabomman Transport Corporation Limited, which held that such contributions could be considered business expenditure under Section 37. The Tribunal's decision was based on the factual background that the contributions were made to a fund created for the welfare of employees who were initially employed in the Port Department and later absorbed by the assessee with unchanged service conditions. The High Court upheld this view, noting that the assessee did not claim the fund to be an approved one under Section 36, and thus, the remittances were made out of necessity for maintaining the employees' service conditions.2. Validity of Tribunal's Direction in Light of Section 36(1)(iv) and Section 40A(9):The second issue was whether the Tribunal's direction to allow the expenditure under Section 37 was valid when the necessary approval from the Principal Commissioner of Income Tax was not obtained, and the deduction falls within the ambit of Section 36(1)(iv) read with Section 40A(9). The revenue argued that deductions under Section 36(1)(iv) could not be allowed without the fund being approved and that Section 40A(9) prohibits deductions for contributions to unapproved funds. The High Court acknowledged these provisions but distinguished the present case based on its unique facts. The assessee's contributions were made to fulfill a statutory obligation to maintain the service conditions of employees absorbed from the Port Department, and there was no allegation of tax avoidance. The Court noted that the approval for the fund was eventually granted, and the contributions were made in compliance with a government directive, making the case different from those cited by the revenue.Conclusion:The High Court concluded that the Tribunal's decision in favor of the assessee was justified based on the specific factual circumstances and the statutory obligations involved. The substantial questions of law were answered against the revenue, affirming that the contributions made towards the superannuation fund could be treated as business expenditure under Section 37, despite the lack of approval for the fund under Section 36(1)(iv) for the relevant assessment year. The appeal was dismissed, and the Tribunal's order was upheld.