1966 (2) TMI 82 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 58K of the Indian Income-tax Act, 1922.
2. Deductibility of the sum transferred to the Regional Provident Fund Commissioner under Section 10(1) or Section 10(2)(xv) of the Indian Income-tax Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 58K of the Indian Income-tax Act, 1922:

The primary question was whether the provisions of Section 58K apply to the transfer of Rs. 3,01,772-1-7 to the Regional Provident Fund Commissioner. Section 58K(1) states that when an employer transfers a provident fund to trustees in trust for employees, the amount transferred is deemed to be capital expenditure. The assessee contended that this section did not apply as the transfer was not voluntary but mandated by the Employees' Provident Funds Act, 1952. It was argued that the transfer was not to trustees in the legal sense but to a statutory body. The court examined the nature of the transfer under the Employees' Provident Funds Act and the scheme framed thereunder, concluding that the transfer was not voluntary and did not create a trust in the legal sense. Therefore, Section 58K was not applicable.

2. Deductibility of the Sum Transferred under Section 10(1) or Section 10(2)(xv) of the Indian Income-tax Act:

The second issue was whether the sum of Rs. 3,01,772-1-7 could be allowed as a deduction under Section 10(1) or Section 10(2)(xv). Section 10(2)(xv) allows for the deduction of any expenditure laid out wholly and exclusively for the business, provided it is not capital expenditure. The Tribunal had earlier disallowed the deduction, considering it capital expenditure under Section 58K. However, since Section 58K was found inapplicable, the court examined whether the expenditure was revenue or capital in nature. It was determined that the expenditure was incurred to meet a statutory liability and was wholly and exclusively for the business. The court also considered Section 10(4)(c) and found that effective arrangements for tax deduction at source were made under Section 58H. Therefore, the expenditure was allowable as a deduction under Section 10(2)(xv).

Conclusion:

The court answered the first question in the negative, indicating that Section 58K did not apply. The second question was answered in the affirmative, allowing the deduction under Section 10(2)(xv). The Commissioner was directed to pay the costs of the assessee.