AI Drafter 
TaxTMI 
TaxTMI 
2015 (8) TMI 924
X X X X Extracts X X X X
X X X X Extracts X X X X
....letion of addition of Rs. 13.84 crores on account of payments made by the assessee to northern railways for construction of railway underbridge near Lodhi Club, Ludhiana. In the same ground, the Revenue also challenged the deletion of addition of Rs. 1.57 crores on account of payment made by the assessee to Punjab Mandi Board, Ludhiana, for construction of bridge on Sidhwan Canal at Dugri Road, Ludhiana. 5. We first deal with the addition of Rs. 13.84 crores which was made by the Assessing Officer on the ground of disallowance of expenditure debited by the assessee for construction of railway underbridge in Ludhiana. The Assessing Officer in this regard has observed that the assessee had made a payment of Rs. 13.84 crores to northern railways for construction of railway underbridge and the same had been claimed as business expenditure by GLADA on the ground that the said bridge was being constructed for the overall development and specifically to ease the traffic situation. The assessee has also claimed before the Assessing Officer that the decision of the hon'ble Kerala High Court in the case of CIT v. Travancore Titanium Products Ltd. [2010] 187 Taxman 81 (Ker) was clearly....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion and the other key areas. The PRBDB is responsible for development of roads and bridges on state highways, district roads, etc. Roads and bridges within city limit are responsibility of local authority or Municipal Corporation. The PRBDB deals only in state highways and district roads which are of strategic importance to the State. The same is clear from the list of projects undertaken by the PRBDB which has been downloaded from the website of PRBDB. The Board has under taken projects on roads or area which do not fall under any local authority or municipal corporation. (ii) GLADA is a statutory body constituted by the Government of Punjab under the Punjab Regional and Town Planning and Development Act, 1995 and its objects and functions are as per section 28 of the Punjab Regional and Town Planning and Development Act, 1995, which reads as under : 28(1). The objects of the authority shall be to promote and secure better planning and development of any area of the State and for that purpose the authority shall have the powers to acquire by way of purchase, transfer, exchange or gift or to hold, manage, plan, develop and mortgage or otherwise dispose of land or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h it has been constituted. No other object or activity can be carried on by GLADA. Its business purpose means the objects for which it has been constituted, i.e., development and better planning of the area of the State. The construction of railway underbridge will help the development of the areas developed by GLADA. GLADA is a statutory body constituted by the Government of Punjab. The governing body consists of Senior Government Officials and the Chief Minister as its Chairman. The decisions of GLADA are taken by the governing body in its meeting. It cannot be compared with the private colonisers. Activities of private colonisers are undertaken with profit motive whereas the activities of GLADA are undertaken with overall development and better infrastructure of area under its jurisdiction. (v) It has been decided by the Government of Punjab (photocopy enclosed) that railway underbridge (RUB) near lodhi club ; Ludhiana is to be constructed by GLADA. This RUB is to be constructed for the overall development and keeping in view the traffic problem of Ludhiana. The traffic coming from Bhatinda, Faridkot, Ferozepur and Moga District, etc., shall not require to enter into the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency and in order indirectly, to facilitate the carrying on of the business. (xii) The Bombay High Court in the case of CIT v. State Bank of India [2003] 261 ITR 82 (Bom) and CIT v. State Bank of India [2003] 262 ITR 662 (Bom), has held that subsidy given by the bank to its subsidiaries towards opening of new branches was considered as an expenditure in the hands of State Bank of India. It was held that though by giving subsidy assets were created, but these assets belong to the subsidiaries and assets did not belong to the State Bank of India and the profits earned by subsidiaries are not profits of SBI. It was held that expenditure incurred by the SBI was a normal revenue expenditure and while holding so the hon'ble Bombay High Court relied on the decision of the hon'ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC) in which it was held that what may be the capital receipt in the hands of a payee need not necessarily be the capital expenditure in the hands of the payer. (xiii) The hon'ble Supreme Court in the case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of those roads was defrayed by the assessee. It only made certain contribution for road development between the various cane producing centres and the mills. The apparent object and purpose was to facilitate the running of its motor vehicles or other means employed for transportation of sugarcane to the factory. From the business point of view and on a fair appreciation of the whole situation the assessee considered that the development of the road in question could greatly facilitate the transportation of sugarcane. This was essential for the benefit of its business of manufacturing sugar in which the main raw material admittedly consisted of sugarcane. These facts would bring it within the principle, that the expenditure was incurred for running the business or working it with a view to produce the profit without the assessee getting any advantage of an enduring benefit to itself. The expenditure was incurred by the asses see for reasons of commercial expediency apart from statutory compulsion. The development of the roads was necessarily meant for facilitating the carrying on of the assessee's business. Furthermore, the Tribunal did not give any finding that the roads were t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....made by the Assessing Officer and arguments of the authorised representative during the assessment as well as appellate proceedings. It is apparent that the payment made by the assessee for construction of railway under bridge in its jurisdiction/area of activity, i.e., Ludhiana is intended to improve the traffic situation especially in areas which are falling in and around the colonies developed by GLADA. It is also important to appreciate that the construction of the said bridge would improve the connectivity between Ferozepur Road to Pakhowal Road leading to smooth flow of traffic and therefore would definitely serve the purpose of GLADA in creating better civic amenities in the area of its operation. Even from purely commercial point of view the said bridge would go to add to the quality of life so as to eventually lead to appre ciation in the market rates in respect of properties situated in that area. In this sense, I can see that the claim of expenditure is related to the objects of GLADA. It is also seen that the Assessing Officer has merely referred to the objects of GLADA in concluding that the said expenditure was application of funds but has definitely missed the clear ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g for giving approval for construction of railway underbridge. The letter regarding estimate of construction of bridge dated March 31, 2005, is also filed on record. 10. Learned counsel for the assessee also filed the map of the railway underbridge to show that the railway underbridge was constructed to connect the properties developed by the assessee. He has, therefore, submitted that the learned Commissioner of Income-tax (Appeals) on proper appreciation of the facts and material on record, correctly deleted the addition. 11. We have considered the rival submissions. It is not in dispute that the assessee made payments for construction of railway underbridge in its jurisdiction and area of activity in Ludhiana with the purpose to improve the traffic situation, specially in the areas which are falling in and around the colonies developed by the assessee. Learned counsel for the assessee filed the map of the underbridge constructed by the assessee to show that railway underbridge was constructed to connect the colonies which were located on both sides of railway track. It was, therefore, for the benefit of the business of the assessee only. The learned Commissioner of Income-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g that the amount is spent for the purpose of business activities of the assessee. There is, therefore, clear nexus between the amounts spent and the business activity of the assessee. We, therefore, do not find any justification to interfere with the order of the learned Commissioner of Income-tax (Appeals) in deleting the addition. This ground of Departmental appeal is dismissed. 13.1. In the same ground, the Revenue challenged the deletion of addition of Rs. 1.57 crores on account of payment made by the assessee to Punjab Mandi Board, Ludhiana for construction of bridge on the Sidhwan Canal at Dugari Road, Ludhiana. The learned Commissioner of Income-tax (Appeals) noted that the Assessing Officer disallowed these expenditure on the same reason as payments have been made to northern railway. Therefore, the learned Commissioner of Income-tax (Appeals) following his order on the above issue, deleted this addition as well. 14. Both parties stated that issue is same as have been considered with regard to payment made to northern railway for construction of railway underbridge. Learned counsel for the assessee also filed copy of the map showing the location where the bridge in q....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under consideration. The amount of interest of Rs. 5.53 crores earned on the same had been shown as interest income in the profit and loss account. The external development charges are collected from the promoters/developers of colonies as per the stipulated rates and are meant to be spent on the external development of the said colonies. The assessee claimed before the Assessing Officer that amount received as external development charges did not belong to GLADA but to the State Government and hence had been treated as liability. The Assessing Officer analysed the provisions of sections 2(p) and 5(5) of the Punjab Apartment and Property Regulation Act, 1995, to hold that it, is nowhere envisaged that amount received as external development charges was collected on behalf of the Government and was to be treated as a liability. The said amount received as external development charges should have been treated as income on the same lines as interest accruing on the amount standing under this head. The assessee challenged the addition before the learned Commissioner of Income-tax (Appeals) and its arguments are reproduced as under : (i) The authority gets the deposit of exter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....overnment itself or other local authority. (v) As per section 5(6) of the Punjab Apartment and Property Regulation Act 1995, the GLADA (Competent Authority) shall pay the external development charges to the Government or a local authority. (vi) These charges are deposited by the promoters for development works to be carried out in or outside their colonies by the Government, or local authorities. The amount received is kept in a separate bank account and is transferred to the State Government or local authorities as and when required. (vii) The GLADA itself does not carry out any development work. The GLADA is only acting as a nodal agency. It has no control over the fund. When the amount has to be incurred, the same is given to the other authorities for carrying out the work. Therefore, these charges are not the income of the authority but it is a fund/liability collected on behalf of other agencies. (viii) The Delhi High Court in the case of CIT v. D. T. T. D. C. Ltd. [2013] 350 ITR 1 (Delhi) has held that since amount under the other general economic services was kept in a deposit unrelated to the business of the assessee and the assessee did ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ept in a deposit unrelated to the business of the assessee and the assessee did not exercise dominion over the said fund/deposit and deal with the said fund/deposit. Keeping in view the aforesaid elucidation of law and applying the same to the factual matrix, noting the nature and character of the other general economic services it was to be held that the same was not taxable income of the assessee. The same has to be excluded from the profit. The aforesaid receipts were not income earned and do not have character of income earned by the assessee over which it had dominion or right. (paragraph 36) (ix) The Karnataka High Court in the case of CIT v. Karnataka Urban Infrastructure Development and Finance Corporation [2006] 284 ITR 582 (Karn) has held that these funds are not the income of the assessee. (x) Also the hon'ble Supreme Court in the case of Motilal Chhadami Lal Jain v. CIT [1991] 94 CTR (SC) 195 has held that when no income accrues to the assessee, he cannot be taxed. (xi) The Delhi Income-tax Appellate Tribunal in the case of Saharanpur Development Authority v. Asst. CIT [2011] 8 ITR (Trib) 263 (Delhi) has held that infrastructure developmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trade or business, run by the State itself, the liability for tax will arise, a typical example is that of service tax collected by the State on events being conducted by the vendors, have to be deposited by the State, in the Government exchequer, making the State an assessee under the service tax. This is only possible where there is an activity of "trade or business", but, if, confined towards development, either of a new township or betterment of the functions of the local authority, article 289(2) shall remain in the oblivion and shall not come into play. The only clause left for consideration then would be clause (3), which comes into play once clause (2) is dis banded. As soon as clause (2) becomes disbanded, clause (3) come to life, which operates only if, "Parliament may by Law declare to be incidental to the ordinary functions of Government". Here, in the instant case, one has to read "Parliament" as "State Government" because in the instant case, it is the State Government which has authorised the assessee to perform the development projects at various places. (paragraph 39) One cannot agree with the argument of the Revenue that there is no document which has drawn ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9(3) and holding that the assessee corporation is not doing any trade activity on its own, it is to be held that the assessee is an agent of the State Government. Further, the fact that the department has been assessing the assessee as a State Government undertaking for the last three years, cannot also be ignored and, therefore, even this cannot be called as an afterthought and applying the "rule of consistency", if is held that the Department cannot be allowed to take a distinctive approach in the current year. (paragraph 43) The Revenue authorities were thus, clearly in error in assessing the business income in the hands of the assessee. This income is deleted, as not belonging to the assessee. 21. The learned Commissioner of Income-tax (Appeals), however, confirmed the addition and dismissed this ground of appeal of the assessee. His findings in paragraph 9 of the appellate order are reproduced as under : "9. I have considered the basis of disallowance made by the Assessing Officer and arguments of the authorised representative during the assessment as well as appellate proceedings. The appellant has mainly relied upon his argument that the external development c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the surplus thereof would only amount to profits. Even the reliance placed by the appellant on the judgment of hon'ble apex court in the case of CIT v. Sitaldas Tirath das [1961] 41 ITR 367 (SC) is of no help as the impugned judgment only lays down the rules with regard to the accessibility of a particular receipt as income. In the instant case if the amount did not belong to the assessee the interest income on the same would not be its income as well. The claim of the appellant that there was diversion by overriding title is not admissible as the external development charges are being collected for a specified purpose are as per the facts of the case which have already been taken care of, leading to the said surplus. It is a different matter that the said surplus had not been used pending clear directions from the State Government but the interest on the same has been treated as income. In the circum stances, it becomes apparent that the funds representing collected external development charges belong to the assessee and should have been treated as its income. As such, the addition made by the Assessing Officer is confirmed." 22. Learned counsel for the assessee reiterated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Commissioner of Income-tax (Appeals) found that no expenses have been incurred by the assessee. Therefore, the receipts in the hands of the assessee is income and has to be taxed accordingly. 24. We have considered the rival submissions. The assessee explained that the assessee-authority received the external development charges from the promoters of private colonies and the charges were deposited by the promoters for development work to be carried out at the periphery of the colonies by the Government or local authority. The amounts are collected as per specified rates and were meant to be spent on the external development of the colonies. These charges are for providing infrastructure, the facilities like roads, water supply and civic system, etc. The assessee explained that these amounts are collected as per the Punjab Apartment and Property Regulation Act, 1995 and provisions of the same are also reproduced in the impugned order. The assessee, therefore, submitted that external development charges does not belong to the assessee at all the same is collected as per the direction of the State Government. 25. Learned counsel for the assessee filed copy of the notification o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee may be a custodian of the amount of external development charges, therefore, how it could be treated as income of the assessee, is not explained by the authorities below. The assessee also in the paper book, filed certain correspondence to show that since external development charges were lying unutilised, therefore, due to financial constraints, request was made to the State Government to permit the assessee-authority to use external development charges for development projects in the larger public interest. This correspondence would reveal that the assessee was not entitled even to use this amount of its own for any purpose. It may also be noted here that since the amount in question itself is shown as outstanding since long, would prove that the amount did not belong to the assessee and was shown as liability in the accounts. The above facts would clearly disclose that the assessee cannot use the external development charges account for any purposes unless it is approved by the State Government. The assessee since referred to the provisions of the Punjab Apartment and Property Regulation Act, 1995 by which external development charges are collected by the assessee and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te Development and Welfare Fund as per notification of Punjab Government for the welfare activities in the field of education, health and welfare. It is seen that the same amount has been disallowed being expenditure debited as payment towards Punjab State Development and Welfare Fund. The assessee claimed before the Assessing Officer that the said amount had been as per notification dated March 31, 2008 and had been paid on the auctioned value of the properties for the welfare activities in the field of education, health and social welfare. The Assessing Officer held that the said amount was mere application of income but not an expenditure as none of the objects of the assessee-authority require it to make payment to the State Welfare Fund. The learned Commissioner of Income-tax (Appeals) agreed with the findings of the Assessing Officer and dismissed this ground of appeal of the assessee. 29. Learned counsel for the assessee relied upon submissions made before the authorities below and referred to paper book page 36 which is notification dated March 17, 2008, through which the assessee was directed to instrumalised to deposit 5 per cent. of the amount realised from the bidder....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion, i.e., Rs. 1.86 crores to the Government of Punjab as per notification dated March 17, 2008 (paper book page 36). When the State Government has directed by way of notification to the assessee to deposit 5 per cent. of the bid amount on sale of the properties with the State Government towards the Punjab State Development Funds in the public account of the State, it is definitely connected with the business activity of the assessee on sale of properties. The assessee-authority is bound to follow the directions of the Punjab Government and has to act accordingly. The payment in question is, therefore not voluntary or gratuitous but is an obligation and primary charges as per the notification issued by the State Government. The amount of 5 per cent. is, therefore, directly related to the sales activities of the assessee-authority. The assessee has followed the directions of the State Government as per the existing laws and the notification as issued by the State Government. The non-compliance of the directions of the State Government would directly affect the business activities of the assessing authority. Therefore, the contributions to the welfare fund is in the nature of commerc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arned counsel for the assessee submitted that the learned Commissioner of Income-tax (Appeals) in preceding assessment year 2009-10 has allowed the appeal of the assessee on the similar issue and it is identical issue on which Departmental appeal is filed, the same may be decided accordingly. He has submitted that the assessee is not specialised in building bridges and payments have been made to this agency for business purposes. 38. The learned Departmental representative relied upon the submissions made in preceding assessment year 2009-10 and also submitted that it is capital expenditure because it is not the work of the assessee to raise the construction of underbridge over railways. 39. On consideration of the rival submissions and facts of the case, we find that issue is identical which is decided in the assessment year 2009-10 in the Departmental appeal and the Departmental appeal has been dismissed. Therefore, following the reasons for decision in the Departmental appeal, we set aside the orders of the authorities below and delete the addition. In the result, ground No. 1 of the appeal of the assessee is allowed. 40. On ground No. 2, the assessee challenged the add....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent between these two independent authorities. The learned Commissioner of Income-tax (Appeals), following the orders on ground No. 1 above held that the amount in question was not wholly and exclusively incurred for business purpose and accordingly dismissed the appeal of the assessee. 43. Learned counsel for the assessee reiterated the submissions made before the authorities below and submitted that object of the assessee is to promote and secure better planning and development of any area of the State as per the provisions of section 28(1) of PRTPD Act under which assessee-authority is constituted, it is specifically mentioned that the assessee shall carry out other operations like supply of water, disposal of sewerage, control of pollution and other services. He has submitted that the assessee is not an expert in carrying out sewerage work. Therefore, it was done through the independent agency who is specialised in that field. The payment is also covered by section 28(2)(ii) of the said Act which provides the assessee-authority to undertake work relating to the amenities and services to be provided in urban areas, urban estate and promotion of urban development as well as co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the assessee-authority only towards sewerage treatment plant and sewerage system. Therefore, it was capital expenditure in nature. 45. We have considered rival submissions and material available on record. As per section 28(1) of the PRTPD Act under which the assessee-authority is constituted, it is specifically mentioned that the assessee-authority shall carry out other operations like supply of water, disposal of sewerage, control of pollution and other services. The object of the assessee is to promote and secure better planning and development of the areas of the State of Punjab. The assessee is created by the Government of Punjab under the abovesaid Act for the development of the areas especially the jurisdiction which lies with Ludhiana. Copy of the minutes of executive committee of the assessee-authority is filed at page 48A in which the executive committee has approved payment in question the Punjab Water Supply and Sewerage Board for construction of sewerage disposal system providing sewerage scheme at Ludhiana under JNNURM. Paper book page 49A is the copy of the letter dated May 19, 2010, in which the meeting was convened under the chairmanship of the Chief Minister ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al is generated by assessee-authority for incurring the expenditure on this issue. We, therefore, set aside the orders of the authorities below and delete the addition of Rs. 28 crores. In the result, ground No. 2 of appeal of the assessee is allowed. 47. On ground No. 3, the assessee challenged the addition of Rs. 40 crores on account of amount paid to Punjab Infrastructure Development Board (PIDB) for construction of flyovers and bridges within the jurisdiction of the assessee-authority as per the objects of the assessee-authority. 48. The brief facts are that the assessee paid the aforesaid amount to Punjab Infrastructure Development Board for four-laneing of the roads and construction of flyovers and underbridges along southern bypass and it debited the same to the profit and loss account. The Assessing Officer disallowed the same amount as discussed in earlier grounds. The assessee, once again reiterated before the learned Commissioner of Income-tax (Appeals) that amount in question was given to the Punjab Infrastructure Development Board for four-laneing the road and construction of flyovers and underbridges along with the southern bypass. The development of the road wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the assessee-authority confirming the amount to be paid to the Punjab Infrastructure Development Board is filed at pages 64 and 65 of the paper book. The assessee, as per special law, was under obligation to construct the roads and flyovers. The Punjab Infrastructure Development Board Department in their letter (paper book pages 197 and 198) mentioned the cost sharing by the Punjab Infrastructure Development Board and the assessee-authority. Therefore, it was the expenditure incurred by the assessee. Learned counsel for the assessee relied upon the same submissions as were made on grounds Nos. 1 and 2 above and also submitted that the assessee is not expert in raising the flyovers and the bridges, therefore payment is made to Punjab Infrastructure Development Board for construction of flyovers/bridges for the benefit of colonies developed by the assessee-authority. It is, therefore, not capital expenditure in nature. 51. On the other hand, the learned Departmental representative relied upon orders of the authorities below and submitted that the assessee made contribution to the project which is not the project of the assessee-authority and payments have been made at the direc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Commissioner of Income-tax (Appeals) that the assessee had transferred the funds to MCL. It may be a loan or gift for contribution from his own capital and it has no connection with the business activities of the assessee. No proper contracts have been entered into. The learned Commissioner of Income-tax (Appeals), on the same reasoning, as given on grounds Nos. 1 to 3 above, dismissed the appeal of the assessee and held that expenditure is capital in nature and not spent wholly or exclusively for business purposes. 54. Learned counsel for the assessee reiterated the submissions made before the authorities below and submitted that the amount in question was paid to MCL for construction of flyovers and overbridge, stadium and other development work. The copy of the minutes approving the payment to MCL is filed at page 46 of the paper book, copy of the letter issued by MCL to the assessee-authority specifying the project-wise contribution requirement is filed at page 54 of the paper book. The copy of the letter issued by Chief Administrator, the assessee-authority confirming the amount to be paid to MCL is filed at page 64 and 65 of the paper book. The assessee, as per the provis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he addition. 59. Learned counsel for the assessee submitted that this ground is same as is considered in the assessment year 2009-10 and submitted that the decision on the same may be followed here also. The learned Departmental representative also submitted that issue is same as is considered in the assessment year 2009-10. 60. On consideration of the facts of the case, we find that this issue is same as is considered and decided in the assessment year 2009-10 in which we have allowed the claim of the assessee for deduction of the expenditure. By following the same reasons for decision on identical issue, we set aside the orders of the authorities below and delete the addition. 61. In the result, ground No. 5 of the appeal of the assessee is allowed. 62. On ground No. 6, the assessee challenged the addition of Rs. 15,12,89,222 as income which have been received on account of external development charges which are lying with the assessee on behalf of the State Government. The learned representatives of both parties submitted that the issue is same as is considered in the assessment year 2009-10. In the assessment year 2009-10, we have restored this issue to the file of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the view that as the assessee was following the cash system of accounting these receipts ought to have been shown as income of the assessee during the period under consideration. The Assessing Officer further pointed out that in column 1(a) of Form 3CD of the audit report, the appellant had mentioned its method of account employed in the previous year as "generally cash except as mentioned in the note on accounts attached to the balance-sheet". The Assessing Officer observed that under section 145(1) the appellant was required to compute its income in accordance with either cash or mercantile system of accounting. In view of these facts, the Assessing Officer asked the appellant to explain why amount received on account of allotment of the flats may not be added to the income of the assessee. 70. Regarding the amounts received against flats under construction the appellant submitted that it had received Rs. 6,49,43,225 during the year against the allotment of flats against which an expenditure of Rs. 2,44,95,009 had been incurred. The appellant further submitted that construction of flats has not been completed and the appellant had neither claimed any expenditure nor shown an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an accepted method, the Assessing Officer pointed out that these decisions have been delivered with respect to the assessment years 1987-88 to 1988-89 and 1991-92 to 1997-98, respectively, whereas, the Finance Act, 1995 has amended the provisions of section 145 with effect from April 1, 1997. The Assessing Officer observed that with effect from April 1, 1997, the appellant was required to follow either cash or mercantile system of accounting and therefore these decisions were not applicable in the assessee's case. As the appellant was following the cash system of accounting, the Assessing Officer held that the receipts shown under Schedule "B" attached to the balance-sheet were required to be shown as income of the appellant. Following additions were made to the total income of the appellant : (i) Addition of Rs. 75,42,113 being 10 per cent. of the earnest money received. (ii) Addition of Rs. 1,69,49,493 received on account of building plan security. (iii) Addition of Rs. 74,30,344 being deposits received by the appel lant. (iv) Addition of Rs. 14,03,859 being security received from different departments. (v) Addition of Rs. 4,04,48,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting.' This view was reiterated by the Supreme Court in CIT v. Bilahari Investment P. Ltd. [2008] 299 ITR 1 (SC). After the above judgments of the Supreme Court it cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income-tax Act. Therefore, the method of accounting followed by GLADA i.e. project completion method is permissible under the Income-tax Act." 75. Copy of the appellant's submissions was provided to the Assessing Officer, who was present during the course of the appellate proceedings. The Assessing Officer vide report dated September 23, 2013, submitted as under : Reply of the assessee on all the above issues has been considered. The assessee has cited two decisions, i.e., CIT v. Hyundai Heavy Industries Co. Ltd. [2007] 291 ITR 482 (SC) and CIT v. Bilahari Investment P. Ltd. [2008] 299 ITR 1 (SC) to suppo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amount should be added to the income of the assessee as the assessee is following the cash system of accounting. 12. Addition of Rs. 74,30,334 on account of deposits against pending adjustments. The assessee had shown deposits pending adjustment amounting to Rs. 74,30,344 about which the assessee had stated that the status of these receipts is not clear due to (no) proper documentation. As the assessee has failed to explain these receipts during the year, these are treated to be the income of the assessee and should be added to its income. 76. Copy of the Assessing Officer's report was provided to the assessee. The assessee made no further submissions on these issues. 77. The learned Commissioner of Income-tax (Appeals), considering the submission of the assessee, confirmed all the above four additions on which the assessee has preferred an appeal. His findings in paragraph 10.5 are reproduced as under : 10.5 I have carefully considered the rival submissions. Each of the aforesaid additions are being discussed as under : (i) Addition of Rs. 75,42,113 being 10 per cent. of the earnest money received : The details of earnest money received/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the appellant explained the purpose of building plan security. The condition for refund of this security is that the construction should be in accordance with the approved plan and the person has to furnish a completion certificate. It is a matter of common knowledge that in most of the cases, construction is not in accordance with the approved plans and often there is some violation of the plan even if it is minor violation. In such circumstances builder does not apply for a completion certificate and prefers to forfeit the building plan security rather than inviting closure/ demolition of building. This is evident from the fact that during the period of eight years from 2006-07 to 2012-13, only Rs. 3,75,000 were refunded in the year 2009-10 and the balance in this account as on March 31, 2013, was Rs. 2,27,87,338. Thus although, initially the amounts of building plan security were received as refundable security, with passage of time these amounts have become a part of the appellant's funds with no likelihood of any claim for refunds. This amount would accordingly partake the character of the appellant's income under section 28(iv) of the Income-tax Act. Reliance in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se way of dealing with the amounts". (ii) Logitronics P. Ltd. v. CIT [2011] 333 ITR 386 (Delhi) ; (iii) Rollatainers Ltd. v. CIT [2011] 339 ITR 54 (Delhi) ; and (iv) Solid Containers Ltd. v. Deputy CIT [2009] 308 ITR 417 (Bom). The hon'ble High Court held as under (page 421) : "The amount which initially did not fall within the scope of the provisions rendering it liable to tax subsequently had become the assessee's income being part of the trading of the assessee. A similar view was also taken by a Bench of the Madras High Court in the case of CIT v. Aries Advertising Pvt. Ltd. [2002] 255 ITR 510 (Mad). The court took the view that the assessee because of trading operation became richer by the amount which had been transferred and/or retained in the profit and loss account of the assessee." The Assessing Officer was therefore fully justified in adding the amount of Rs. 1,69,49,493 to the total income of the appellant. (iii) Addition of Rs. 74,30,344 being deposits received by the appellant With respect to these receipts appellant has merely submitted that status was not clear and therefore these have been kept in suspense account. The appellan....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it was following cash system of accounting. Therefore, when the bills are raised and the money realised, the income accrued to the appellant. However, the same was not accounted for in the profit and loss account till the contract work was completed. This accounting treatment is not in accordance with law. According to section 4 of the Income-tax Act, income tax is chargeable in respect of total income of each assessment year. Income received during the year cannot be deferred to future by adopting a method of accounting which is inconsistent with the method of accounting which appellant claims to be regularly following. If the income has been received during the year, it has to be recorded during the year particularly when the appellant is following the cash system of accounting. In view of the charging section, the instalment received during the year is to be accounted for while computing the appellant's income. In view of these facts, it is clear that the instalments actually received during the year under assessment are to be treated as revenue receipts. In the appellant's case, there is no dispute that the appellant received these amounts during the year and these ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 91) : "Applying the aforesaid principles to the facts of the present case, it is undisputed that the assessee allots an industrial shed on lease hold basis in which premium is required to be paid over ten years period and the rights are transferred in favour of the allottee/lessee on the payment of final instalments. Further, till the assessee received payment of annual instalments during the year, it is an inchoate right in favour of the assessee as in the event of failure on the part of the allottee/lessee, the managing director of the corporation has only right to resume but cannot enforce the payment of the balance amount. Still further, the Revenue since 1979 had been treating the accrual of profits on yearly basis on instalments due till the payment of last instalments was made and there is no justification for the Revenue in deviating from the said approach which is in conformity with law. Viewed from this, the approach of the Tribunal was correct and it had rightly held that even under mercantile system of accounting, the income would accrue on receipt of instalment on year to year basis and not on the allotment of land or industrial sheds." Ratio of this judgm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of map approval over and above the map approval fees. The approval fees is booked as income by the assessee and security is refunded as and when demanded by the allottees. The copy of the letter issued by the Punjab Urban Planning and Development Authority prescribed the rates at which building security has to be charged and also about the refund of the same at the time of submission of the building plan is filed at pages 167, 168 and 169 of the paper book. He has submitted that building plan security is refundable as and when building is completed. The details of the refund are filed at page 209 of the paper book to show that in assessment year under appeal, the assessee has refunded Rs. 3,75,000. The said amount has been shown as liability in the balance- sheet, copy of which is filed at page 3 of the paper book. Since the amount did not belong to the assessee, therefore, the assessee cannot forfeit the amount and the assessee is bound to return the security amount as and when demanded. He has submitted that the authorities below have merely confirmed the addition because there is no likelihood of claim of refund in future. He has submitted that the decisions relied upon by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amount is refundable as and when completion certificate is obtained by the parties who have submitted the building plan. The refund of the security is to be done as per guidelines issued by the Punjab Urban Planning and Development Authority. No details have been brought on record if after passing of certain period, whether the assessee would be entitled to forfeit the amount in question. No detail is also brought on record as to how many parties have submitted completion certificate and in how many cases, some actions have been taken by the assessee-authority. Merely because only a small amount is refunded to the parties it would not prove that the assessee has forfeited the amount in question and earned it as income. The assessee has continuously shown the security amount as liability in the books of account and has never taken the amount in its profit and loss account. Therefore, the case law relied upon by the learned Commissioner of Income-tax (Appeals) are clearly distinguishable. In the absence of complete details brought on record, the learned Commissioner of Income-tax (Appeals) was not justified in dismissing this ground of appeal of the assessee. Therefore, the matter re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the group case of Asst. CIT v. Punjab Urban Development Authority in ITA No. 762/CHD/2007, dated December 6, 2013 [2014] 32 ITR (Trib) 481 (Chandigarh). The learned Departmental representative for the Revenue also submitted that the issue is covered against the assessee by the above decision in the case of Punjab Urban Development Authority(supra). 89. On consideration of the submissions and material on record, we find that ground No. 10 is covered against the assessee by order of the Income- tax Appellate Tribunal, Chandigarh Bench, in the case of Punjab Urban Development Authority in which on identical issue, the Tribunal in principle, confirmed the orders of the authorities below with regard to addition maintained on account of advances received from the customer by following cash system of accounting. However, certain directions have been given as to how the addition is to be made against the assessee. The findings of the Tribunal in this case in paragraphs 62 to 72 are reproduced as under : "62. We have heard the rival submissions carefully. Section 145 of the Income-tax Act reads as under : 'Section 145.-(1) Income chargeable under the head '....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... only when the same have been actually received by the assessee because the assessee was following cash system of accounting. Therefore, admitted position is that the assessee is following cash system of accounting. 63. Normally people other than the traders keep accounts in cash system, i.e., people like doctors, advocates or other professionals keep their accounts in cash basis because they are not selling any merchandise and it is very easy to follow cash system for them. As we have already observed that it is surprising that the assessee had followed cash system of accounting. Therefore, when the traders follow cash system and whenever such traders sell any merchandise on credit he would enter the transaction only in a memorandum account or in some other rough account as a record so that he does not forget the same. This is the reason we are surprised that the assessee is following cash system of accounting when in the assessee's case large number of transactions are involved then how can an organisation follow cash system because in the transaction where no cash is incoming or outgoing such transactions are not recorded under this system and they are only noted as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the face value of the bonds and the amount due as principal as escaped income of the previous year relevant to the assessment year 1948-49. The order was confirmed by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The High Court also decided the issue against the assessee. On further appeal before the hon'ble Supreme Court it was mainly contended that the assessee was maintaining books of account on cash system of accounting and until the assessee realised the value of bonds, no interest can be said to have been received by the assessee because it was further submitted that when the accounts are maintained on cash system of accounting, receipt of money alone may be taken into account in determining the taxable income. The hon'ble apex court mainly observed at page 382 as under : 'Under section 4 of the Income-tax Act, 1922, the total income of any previous year of a resident assessee includes all income, profits and gains from whatever sources derived which are received or are deemed to be received in the taxable territories in such year by or on behalf of such person, or accrue or arise or are deemed to accrue or arise to him in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llants had been pleased to do so. I cannot think that Income-tax is due or not according to the manner in which the person making the profit pleases to deal with it".' The other observations have been summarised in the headnote which read as under : "If accounts are maintained according to the mercantile system, whenever the right to receive money in the course of a trading trans action accrues or arises, even though income is not realised, income embedded in the receipt is deemed to accrue or arise. Where the accounts are maintained on cash basis, receipt of money or money's worth and not the accrual of the right to receive is the determining factor. Therefore, if commercial assets are received by a trader maintaining accounts on cash basis in satisfaction of an obligation, income which is embedded in the value of the assets is deemed to be received ; the receipt of income is not deferred till the asset is realised in terms of cash or money. It makes no difference whether the receipt of assets is in pursuance of an agreement or that the trader is compelled by law to accept the assets from the debtor. Once title of the trader to an asset received is comple....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omplex issue and without going into the details we would simply take the simple meaning of the 'income'. In the normal commercial parlance an item which is of revenue nature, is taken as income. Now in a case where an organisation which is carrying out the business of construction and development of houses and if such organisation sells the same outrightly or on instalments basis then such instalments would be in nature of income. Therefore, there is no force in the submissions of learned counsel of the assessee that instalments received by the assessee do not come under the charging section and therefore, the same cannot be taxed simply because under section 145 the receipt under cash system has to be taxed. No doubt section 145 is a machinery section but machinery section also have lot of bearing on determination of income and cannot be ignored lightly. In this connection we would like to refer to one of the celebrated judgment of the hon'ble Supreme Court in the case of CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC). In that case the assessee was a registered firm. Clause 13 of the instrument of partnership deed showed that goodwill of the firm have not been va....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the deci sion of K. K. Khullar v. Deputy CIT [2008] 304 ITR (AT) 295 (Delhi). In this case the assessee was an advocate and received certain amounts for services to be performed over a period of time. The amount received from the client in respect of services rendered in the year under consideration, was shown as income and the balance amount was shown as advance. The Assessing Officer held that as per the provisions of section 145 the assessee was following cash system of accounting and therefore, the whole amount was taxable. The Tribunal decided the issue in favour of the assessee vide the following paragraphs (page 301) : 'We have considered the facts of the case and rival submissions. We may refer to the charging section 4 of the Act to the effect that Income-tax shall be charged for any assessment year at the rate or rates provided in any Central Acts in respect of the total income of the previous year of every person. Section 5 deals with the "scope of total income", which is defined in respect of any previous year in terms of accrual, deemed accrual, receipt and deemed receipt etc. Section 145 deals with the method of accounting in respect of "profits and gain....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ited in the books of account and debited to managing agent. In November 1947, the assessee desired to have managing agency transferred to two private companies and in this connection agreed in December, 1948 to accept 2½ per cent. as commission and gave up 7½ per cent. of its earnings. The Revenue sought to assess the amounts to Rs. 1,36,903 and Rs. 2,00,625 being 7½ per cent. of the foregone amount as income. On these facts it was held as under (headnote) : 'Held, that the subsequent agreement had altered the rate of commission in such a way as to make the income which really accrued to the assessee different from what had been entered in the books of account. This was not a case of a gift by the assessee to the managed companies of a portion of income which had already accrued, but an agreement to receive a lesser remuneration than what had been agreed upon. The assessee had in fact received only the lesser amount in spite of the entries in the account books, and this lesser amount alone was taxable. Income-tax is a levy on income. Though the Income-tax Act takes into account two points of time at which the liability to tax is attracted,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amount actually received out of total sale amount has been shown as sale whereas the plots which have been sold but only a part of the sale amount of which has been received are not reflected in the closing stock which is the reason for the loss in the purchase and sale of plots for the assessment year 2003-04. But in the subsequent years, i.e., assessment year 2004-05 onwards, there is profit from purchase and sale of plots. During discussion, it was explained by counsel by giving an example. Suppose, the cost of plot is Rs. 1,00,000 and it is sold for Rs. 1,50,000 during this year but only 25 per cent. of the cost of the plot, i.e., Rs. 37,500 is actually received during the year. Actually, the profit earned is Rs. 50,000. But since the assessee has adopted cash system, sale will be shown at Rs. 37,500 for the year. The value of closing stock of that plot will be nil as the plot has been sold and is in the possession of the purchaser. So this will result into loss of Rs. 62,500 for that year. Now in the next year, there will be no opening stock in respect of that plot but if the balance amount of sale consideration, i.e., Rs. 1,12,500 is actually received in that year that will ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... all the instalments are paid such buyer or allottees will not become the owners. However, we find no force in this contention because no other Act can override the provisions of the Act and this has been clarified by the hon'ble Supreme Court in the case of Southern Tech nologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC). Therefore, the instalments received against such sales which are in the nature of revenue receipts, are required to be taken into consideration for determination of income in this year because the assessee has adopted cash system of accounting during the year. Next contention was that the assessee was following continuously the project completion method and therefore, no income can be determined unless the projects are completed. Again as discussed above in detail the issue of system of accounting and the meaning of cash system of accounting, this contention cannot be accepted because the assessee cannot follow two different systems of accounting under the same head. Therefore, in our opinion, the Assessing Officer has correctly included all the instalments received from the allottees of the houses and flats in the income of the assessee. 68. However....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts and credited to its account a sum of Rs. 43,692 representing full sale price of the land. At the same time the assessee also debited an estimated sum of Rs. 24,809 as expenditure for the developments. This was disallowed by the Revenue. On appeal it was held as under (headnote) : 'Held, (i) that the undertaking to carry out the developments within six months from the dates of the deeds of sale (which, in view of the fact that time was not of the essence of the contract, meant a reasonable time) was unconditional, the appellant binding itself absolutely to carry out the same. That undertaking imported a liability on the appellant which accrued on the dates of the deeds of sale, though that liability was to be discharged at a future date. It was thus an accrued liability and the estimated expenditure which would be incurred in discharging the same could be deducted from the profits and gains of the business, and the amount to be expended could be debited in accounts maintained in the mercantile system of accounting before it was actually disbursed. The difficulty in the estimation thereof did not convert the accrued liability into a conditional one, because it was alw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s well as closing stock. In the cash system of accounting closing stock is not considered, therefore, what has been accumulated in the schemes is also required to be considered. Considering the contentions of the parties and the principles we have already discussed, we are of the opinion that whatever instalments were accumulated in the schemes needs to be considered along with the opening stock whenever a particular scheme was completed. This is so because it was pointed out by learned counsel of the assessee that the profit in each of the scheme was offered for taxation when a particular scheme was completed. Therefore, the results of individual schemes have to be recalculated and instalments accumulated should be taken as income and expenditure incurred after reducing the expenditure incurred in cash which has been allowed in various years, should be reduced from the such instalments and net results should be considered in the year of completion of each of the housing schemes in the year in which profits of such completed scheme were actually offered by the assessee. 72. In these circumstances we set aside the order of the learned Commissioner of Income-tax (Appeals) an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....had debited expenditure amounting to Rs. 61,41,511 in its income and expenditure account under the head "establishment and personal expenses" on account of contribution to contributory pension fund. The Assessing Officer noted that the provident fund was not approved by the Commissioner of Income-tax/Chief Commissioner of Income-tax or under any scheme framed by the Employees Provident Fund Act, 1952. The Assessing Officer asked the appellant to explain why the contribution made to provident fund may not be disallowed. The appellant submitted that as per powers of notification issued by housing department on August 12, 1983, PUDA/GLADA can manage its provident fund independently. This notification had been challenged by the Regional Provident Fund Commissioner and the Ministry of Labour, Government of India in the court. The first authority had decided in favour of Regional Provident Fund Commissioner that the provident fund shall be managed by the Regional Provident Fund Commissioner. The PUDA has challenged this order in the hon'ble Punjab and Haryana High Court. Pending the disposal of this case, the amount contributed by GLADA and the share of employees was being deposited ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ryana High Court has stayed the same. Copy of the order of Punjab and Haryana High Court is enclosed herewith. The above contributions are statutory contributions which have been contributed as per the directions of the State Government. 2. Reliance is placed upon the judgment of the Punjab and Haryana High Court in the case of Punjab Financial Corporation Ltd. [2007] 295 ITR 510 (P&H) wherein it has been held that the contribution to the provident fund is allowable even if it is not recognised. The High Court held as under : "Applying the above principles in the present case, it is not disputed that the assessee had contributed the provident fund for its employees under the Provident Funds Act, 1925. Further, it cannot be disputed that the expense was made wholly and exclusively for the purpose of business and was neither capital in nature nor the personal expense of the assessee. Section 36(1)(iv) of the Act does not debar specifically deduction on account of contribution made under the Provident Funds Act, 1925. It only talks about grant of deduction in respect of recognised provident fund. Keeping this in view, we do not find that any illegality has been co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not recognised under any law as stated above should be disallowed and added back to the income of the assessee.' Addition on account of employees' share to provident fund of Rs. 61,41,511 In this regard, it is submitted that since the provident fund of the assessee is neither approved by the Chief Commissioner nor by the Commissioner of Income-tax nor it is a provident fund established under a scheme framed under the Employees Provident Funds Act, 1952 and also keeping in view the fact that the Provident Fund Com missioner has filed a suit against the assessee, the amount deducted by the assessee from its employees, is to be treated as income of the assessee under section 2(24)(x) of the Income-tax Act, 1961. Section 2(24)(x) is reproduced as under : '(24) "income" includes- (x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees ;' Therefore the provident fund deducted from the employees, i.e., equal to Rs. 61,41,511 (i.e. equal to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ioner or Commissioner in accordance with the rules contained in Part A of the Fourth Schedule and includes a provident fund established under a scheme framed under the Employees's Provident Fund Act, 1952." 11.7 In this case contributions have neither been made to CPF approved by the Commissioner of Income-tax nor to a provident fund established under a scheme framed under the Employees' Provident Fund Act, 1952. Moreover, the constitution of the provident fund is not in accordance with the law of the land and the Regional Provident Fund Commissioner who is statutory authority for the purposes has also filed a suit against the appellant, for not following the provident fund law. Further, the appellant has lost the case in the lower court and the case is stated to be pending before the hon'ble Punjab and Haryana High Court. The appellant is managing the fund on its own and virtually keeping and investing the provident fund contributions at its hon'ble Supreme Court in the case of CIT v. Textool Co. Ltd. in Civil Appeal No. 447 of 2003, vide order dated September 9, 2009 [2013] 1 ITR-OL 241 (SC) has held as under (page 245) : 'True that a fiscal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to assessment year 1977-78 wherein section 40A(9) was inserted by the Finance Act, 1984 with retrospective effect from April 1, 1980. Therefore, this judgment pertains to the period before the insertion of provisions of section 40A(9). Further, the judgment is in the context of Provident Fund Act, 1925, whereas section 2(38) which defines recognised provident fund specifies only two types of provident fund Scheme one created under the Provident Fund Act, 1952 or those approved by the Chief Commissioner of the Commissioner of Income-tax. 11.10 Keeping in view the aforesaid facts the Assessing Officer was fully justified in of Rs. 61,41,511 being amount paid on account of contribution to provident fund and addition of Rs. 61,41,511 as income of the appellant under section 2(24) of the Income-tax Act. This ground of appeal is accordingly dismissed. 96. Learned counsel for the assessee submitted that the assessee-authority is a statutory body constituted under PRTPD Act. Earlier it was a part of PUDA. As per notification issued by Housing Department on August 12, 1983, PUDA/GLADA can manage its provident fund independently. The copy of the relevant document is filed at pag....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shall be deemed to be a Government Provident Fund for the purpose of the Provident Funds Act, 1925 (Central Act XIV of 1925) and notwithstanding anything contained in section 8 thereof, such fund may be administered by such officers of the State Government or of the Board as the State Government may specify in that behalf. The above clearly shows that Government through this noti fication was mandated to establish a Government provident fund under the Provident Funds Act, 1925. Further page 152 of the paper book is copy of another order of the Government of Punjab showing that on constitution of the Punjab Urban Planning and Development Authority various terms in the Punjab Housing Development Board Rules, 1983 would stand amended by substitution of the words 'Punjab Housing Development Board' to 'Punjab Urban Planning Development Authority'. This shows that same rules which were made for the Punjab Housing Development Board were adopted for the assessee-authority also. Therefore, it becomes clear that provident fund established by the assessee is governed by the provisions of the Provident Funds Act, 1925. Rule (1) of Part 'A' to the Fourth Schedu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ads as under : 'any sum received by the assessee from his employees as contri butions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees ;' In this clause which is part of the definition of income, there is no mention of the word 'recognised provident fund' therefore, any contribution raised from the employee towards any provident fund would form part of the deemed income under this provision. In our opinion, this has been deliberately done by the Legislature because as far as employees contribution is concerned, Parliament wanted that the same should not be used by business people and should be deposited with the provident fund authorities and or trust at the earliest and that is why no difference has been made between recognised provident fund or other funds. From this it becomes clear that as far as employee's contribution is concerned, the same is not covered by section 36(1)(iv). However, at the same time it cannot be denied that the contribution made by the assessee towards provident fund is clearly....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that since provident fund established by the assessee was in terms of the Indian Provident Funds Act, 1925, therefore, this has to be read into the exceptions and accordingly fetter for not allowing the deduction under section 40A(9) would not be applicable for the funds contributed towards provident fund as the employer share in terms of the Indian Provident Funds Act, 1925 which was adopted by the assessee. Therefore, we hold that the assessee is entitled to claim deduction in respect of contributions made towards provident fund even if such fund is not recognised. 85. The next contention raised is whether deduction can be allowed even if the contribution was paid after the end of the year. The claim of the assessee is that the payments have been made before the due date of filing of return as provided in section 43B. The relevant portion of section 43B reads as under : '43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or (b) any sum p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f filing of return then the same has to be allowed. However, as observed earlier this benefit could not be given to the assessee because the assessee is following the cash system of accounting and allowability of expenditure itself depends on actual cash payment. However, we would like to observe that at the begin ning of this issue we have clearly mentioned that this issue relates to many years, therefore, if the payment for this year was made in the next year the same would be clearly allowable in the next year. There fore, the Assessing Officer should examine this issue clearly and allow the payments on cash basis even if they relate to the earlier years. The last dispute raised by the Revenue is that the assessee was not main taining separate bank accounts and or fixed deposit receipts in the account in respect of provident fund because the same have been shown in the balance-sheet. In this regard the learned Departmental representative for the Revenue has relied on the decision of CIT v. Textool Co. Ltd. (supra). In that case the assessee had claimed deduction of Rs. 92,06,978 as contribution towards approved gratuity fund. A sum of Rs. 50 lakhs was paid as initial contributio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or his nominee (b) Accounts Officer (Pension) as Secretary of the Committee (c) Administrative Officer (Admin-I)-Member (d) Sh. Karam Chand, Senior Assistant and Sh. Shishu Pal, Senior Assistant-Members (representing the employees of PUDA, approved vide item No. 9, 10 in the meeting of the Authority held on November 29, 2002). Rakesh Singh Vice Chairman, PUDA' Thus it is clear that separate committee has been constituted but it is not clear whether this committee was monitoring the funds of the provident fund. The fixed deposit receipts have been debited and made in the name of the CPF FDRs which means separate FDRs have been made but how it has clearly been controlled by the managing committee, is not very clear. Therefore, to this extent we set aside the order of the learned Commissioner of Income-tax (Appeals) and direct the Assessing Officer to examine whether provident fund was independently monitored in the light of the directions issued by the hon'ble Supreme Court in the case of Textool Co. Ltd.(supra). 86. Another contention was also raised that the funds have not been invested in the long-term FDRs. We....