Employer contribution under certified standing orders treated as legally enforceable welfare and allowed as a deductible business payment.

An employer's contribution to a workers' sickness benefit society was treated as a legally enforceable employment-related payment because it arose under certified standing orders and a binding settlement. On that basis, the contribution fell within the exception for sums required by or under law and was not disallowed under section 40A(9) of the Income-tax Act, 1961. The payment was also characterised as employee welfare expenditure incurred for the smooth conduct of business, supporting deduction under section 37(1). The disallowances were therefore deleted and the contribution was held allowable.

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Issues: Whether the assessee's contribution to the workers' sickness benefit society was disallowable under section 40A(9) of the Income-tax Act, 1961, or was allowable as a contribution required by law and as business expenditure.

Analysis: The contribution was made pursuant to certified standing orders and a settlement between the employer and employees concerning medical benefits. The standing orders had statutory force under the Industrial Employment (Standing Orders) Act, 1946, and the settlement was binding under the Industrial Disputes Act, 1947. The society was constituted to provide medical relief and the assessee's obligation to contribute arose from enforceable employment terms and statutory labour arrangements. On that footing, the payment fell within the exception in section 40A(9) for sums required by or under any other law. The contribution was also incurred for employee welfare and the smooth conduct of business, supporting deduction under section 37(1).

Conclusion: The contribution was not hit by section 40A(9) and was allowable to the assessee.

Final Conclusion: The disallowances were deleted and the assessee's appeals were allowed.

Ratio Decidendi: A contribution made by an employer pursuant to a statutory settlement or certified standing orders, where the obligation is legally enforceable and intended for employee welfare, is a sum required by or under law and is not barred by section 40A(9) of the Income-tax Act, 1961.

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