TaxTMI 
TaxTMI 
2025 (1) TMI 1296
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....T erred in allowing the amount of Rs. 9.81 crores as expenditure on account of contribution to approved pension funds ignoring the provisions of Section36(l)(iv) and 40A (9) of the Act read with Rule 87 of the Income Tax Rules, 1962?" 2. Insofar as Question (i) is concerned and pertains to NRI expenses, learned counsels for parties are ad idem that the said issue would have to be answered in favour of the respondent /assessee in light of the order passed by us in Director of Income Tax vs. ANZ Grindlays Bank ITA 563/2007 decided on 19 September 2024, and where we had while dealing with this question held as follows:- "3. Insofar, as the aspect of expenses incurred in garnering FCNR deposits is concerned, we note that the Tribunal has while dealing with this aspect held as follows: - 7.2 During the hearing the Ld. CIT (DR) stated that the CIT (Appeals) had erred in holding that the expenses incurred at places like Singapore, Hong-Kong etc could not be treated as a part of head office expenses and that the same were to be allowed after obtaining the exact details from assessee despite the fact that such expenses were not even debited in the accounts of Indian Bra....
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....ta High Court in Rupenjuli Tea Company v. CIT [186 ITR 301] and Mumbai High Court in the case of CIT vs Abu Dhabi Commercial bank reported in 262 ITR 55 where the court have categorically held that 'head office' expenses which are incurred exclusively and ONLY for the Indian business were fully deductible for determining the Indian business profits. No parts of such expenses were disallowable. Reliance was also placed on the decision of the Special Bench of the ITAT in the case of Inspecting Assistant Commissioner vs. Goodricke Group Ltd. reported in 12 ITD 1 (Calcutta). It was further submitted that the learned AO had relied upon the judgment of the Calcutta High Court in the case of UCO Bank Vs. CIT (200 ITR 68) for making this disallowance. That judgement had subsequently been reversed by the Supreme Court in 240 ITR 355(SC), Reliance was placed on Article 7 of the Indo-Australian Double Taxation Avoidance Treaty under which the Business Profits of Permanent Establishment (PE) in India were to be computed. Under Article 7 of the aforesaid Treaty the profits of a PE carrying on business in India were to be computed as if it were a distinct and separate enterprise. Therefo....
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.... in excess of the limit as specified in Rule 87 of the Income Tax Rules, 1962 [Rules] would be disallowable in light of Section 36 (1) (iv) read along with 40A (9) of the Act. 5. The Tribunal has taken the view that the issue would be liable to be answered in favour of the assessee bearing in mind the decision of the Supreme Court in Commissioner of Income Tax vs. Sirpur Paper Mills (1999) 3 SCC 596. 6. Mr. Menon, learned counsel who appears in support of the appeal, has taken us through the relevant statutory provisions contained in the Act as well as the Rules to submit that the limitations as introduced by virtue of Rule 87, and which pegs the contribution at not exceeding 27% of the salary of an employee for each year, would clearly apply and thus the entire contribution as made by the respondent/assessee could not have been claimed as a deductible expense. According to Mr. Menon, this would be the position which would obtain even on a conjoint reading of Section 36 (1) (iv) along with sub-sections (9) and (10) of Section 40A. 7. Having heard the submissions addressed on behalf of respective sides and on going through the judgment of the Supreme Court in Sirpur Paper M....
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....y position which emerged from a reading of Section 36, the Supreme Court pertinently observed as follows:- "9. Section 36 (1) (iv) states that the deductions provided in the clauses thereof "shall be allowed" when computing income under Section 28. Clause (iv) lists as so deductible any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to limits that may be prescribed for the purposes of recognition of these funds and subject also to such conditions as the Board might think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the number of members of the fund. 10. The contributions in the instant case were not payments for recognition or approval and, therefore, outside the limits that could be prescribed under clause (iv) in that behalf. 11. It is arguable that the contributions made here are annual contributions of fixed amounts but, for the purposes of these a....
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....ptance when we read Section 36 (1) (iv) alongside Section 40A (9) and (10). Section 40A (9) too speaks of deductions being allowed in connection with the "setting up" or "formation of" or "as contribution to any fund" by an assessee in terms contemplated under Section 36 (1) (iv). The disqualification which is then introduced by sub-section (10) of Section 40A too is coupled to the limits that may be prescribed in the provisions specified therein including Section 36 (1) (iv). 13. The phraseology employed in Section 36 (1) (iv) and when it speaks of "subject to such conditions as the Board made deem fit to specify in cases" is to be read along and in juxtaposition with the expression "for the purpose of recognising the provident fund or approving the superannuation fund" and which stands mirrored and replicated in Rule 88 which again speaks of the initial contribution. 14. Insofar as Rule 87 is concerned, that clearly seems restricted in its application to the ordinary annual contribution that may be made by an employer to a fund and prescribes an outer limit with respect to the employers' contribution insofar as that particular employee is concerned. 15. We find that a si....
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....income referred to section 28. Clause (iv) is under section 36(1) would be relevant for our case which is quoted hereinbelow: "Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- xxxx xxxx xxxx (iv) any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the number of members of the fund;" 5. In Part-B of the Fourth Schedule to the Income-tax Act, the subject dealt with is approved superannuation fund. In Clause-(iii) thereunder, the conditions for approval have ....
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....e amount of such contribution. This has not been disputed by the revenue that the amount paid by the respondent/assessee in excess of 27% of the salaries of the employees are neither towards ordinary annual contribution nor towards initial contribution and the payment was necessitated due to short-fall discovered in the course of actuarial valuation of the funds which is in exceptional circumstances and has been made to ensure that the superannuation funds will be able to discharge its obligation to the employees. The learned Tribunal bearing the above principle in mind and also taking note of the decision of the co-ordinate bench of the Tribunal in Glaxo Smithkline Pharmaceuticals case (supra) allowed the assessee's appeal. The revenue had challenged the order passed by the learned tribunal in the case of Glaxo Smithkline Pharmaceuticals (supra) before the High Court of Judicature at Bombay CIT v. Glaxo Smithkline Pharmacenticals IT Appeal No. 2232 of 2011 which was dismissed by judgment dated 6th March, 2013. 7. However, we are conscious of the fact that the Hon'ble Division Bench while dismissing the appeal had made an observation that even if the expenditure as....
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.... the Ld. CIT(A) vide letter dated29.7.1999 submitted that the deduction of Rs. 9.81 crores was claimed before the AO during assessment proceedings. However the AO failed to take any cognizance of the request made by the assessee. The assessee before the Ld. CIT (A) further submitted that the issue is covered in favour of assessee by the judgment of Apex Court in the case of Sasoon J David and Co. Pvt. Ltd. Vs. CIT reported in 118 ITR 261. However the Ld. CIT(A)disregarded the contention of the assessee and confirm the order of AO by observing as under :- "13.4 I have considered the submissions made by the appellant bank. It is seen that section 36(1)(!v) specifically deals with the tax deductibility of contributions made to approve pension funds. Section 40A (9) explicitly places an embargo on the deductibility of any payment made over and above the limits laid down in Rule 87 of the Income Tax Rules. In view of the explicit statutory provisions restricting deductibility of contributions made to approve pension fund in excess of the limits laid down the claim of the appellant made vide letter dated29.7.1999 is not allowable. Hence the addition made on this count as Item &#....
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.... is a condition which the Board was empowered to impose, having regard to the provision in this behalf in rule 88 of the Income-tax Rules,1962. The second condition is that only 80 per cent of the amount actually paid by the employer can requirement that the amount must be actually paid and the other is that the deduction shall only be of 80 per cent. Taking the second part first there is no justification for it. The section states that the deduction shall be wholly allowed. It permits the Board to specify conditions but these conditions cannot have the effect of curtailing the scope of the deduction granted by the section. The amplitude of the deduction permitted by the section cannot be cut down under the guise of imposing a 'condition'. In fact, this is not a condition but an impermissible attempt to rewrite the section. The last condition imposed by the said notification is that the deduction shall be spread out equally over a period of five years commencing with the assessment year relating to the previous year in which the amount was paid. This too is no 'condition' but a provision super-added to the section which does not contemplate any such distribution of the ....
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....f payment to approve the pension fund in the given facts and circumstances. In this regard, we note that the principles laid down by the Hon'ble Apex Court in the case of Goetz India Ltd. (supra) does not restrict the power of the Tribunal to entertain the fresh claim of the assessee. Thus, we reject the argument of the Id. DR. We further note that the impugned issued is directly covered in favour of assessee by the judgment of Hon'ble Apex Court in the case of CIT Vs. Sirpur Paper Mills reported in 237 ITR 41 wherein it held as under: "Section 36(1)(lv) states that the deductions provided in the clauses thereof' shall be allowed' when computing income under section 28. Clause (Iv) provides for deduction of any sum paid by' the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to limits that may be prescribed for the purposes of recognition of these funds and subject also to such conditions as the Board .might think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis ....