2011 (8) TMI 328 - AT - Income Tax

Disallowance u/s 40A(9)- statutory payment versus voluntary payment - contribution amounting to Rs 16,77,170/- made by the assessee to MSWC Karmachari Welfare Fund - The assessment year 2002-03 and 2003-04, the issue involved is similar relating to the contribution made by the assessee to the MSW Karmachari Welfare Fund - Held that - Service Regulations framed by the appellant Corporation for the terms and conditions of employment and services of their employees carry a statutory force. - contribution made by the appellant as an employer towards the Karmachari Welfare Fund falls within the expression as required by or under any other law for the purposes of section 40A(9) of the Act. As a consequence, such an amount is not disallowable in terms of section 40A(9) of the Act.

Summary

Issues Involved:
1. Disallowance under section 40A(9) of the Income-tax Act, 1961 regarding contributions to MSW Karmachari Welfare Fund.
2. Admission of an additional ground concerning depreciation on assets based on book values due to retrospective insertion of Explanation 6 to section 43(6) by the Finance Act, 2008.

Detailed Analysis:

Issue 1: Disallowance under section 40A(9)
The central issue in the appeals for the assessment years revolves around the disallowance under section 40A(9) of the Income-tax Act, 1961 concerning contributions made by the assessee to the MSW Karmachari Welfare Fund. The assessee, a state government-established corporation, argued that the contributions to the Karmachari Welfare Fund should not be disallowed under section 40A(9) as they fall within the exceptions provided in the section. The exceptions relate to sums paid for purposes provided under clauses (iv) and (v) of section 36(1) or as required by any other law in force.

The assessee contended that the contributions were made per the Maharashtra State Warehousing Corporation (Staff) Service Regulations, which have statutory force and are backed by the Government of Maharashtra. The Revenue, however, argued that the contributions were made based on a contractual obligation and not mandated by law.

Upon review, it was determined that the Service Regulations, framed with the previous sanction of the Government of Maharashtra, carry statutory force. Therefore, the contributions to the Karmachari Welfare Fund fall under the exception "as required by or under any other law" for the purposes of section 40A(9). Consequently, the disallowance was not applicable, and the Assessing Officer was directed to delete the impugned addition.

Issue 2: Admission of Additional Ground on Depreciation
For the assessment year 2003-04, the assessee raised an additional ground concerning the entitlement to claim depreciation on various assets based on book values as per the retrospective insertion of Explanation 6 to section 43(6) by the Finance Act, 2008. The assessee also sought depreciation on Warehouses by treating them as Plant.

The Tribunal admitted the additional ground, citing the judgment of the Hon'ble Supreme Court in the case of National Thermal Power Corporation Ltd. v. CIT, which allows for the admission of a pure question of law that does not involve new fact investigations. The issue was remitted to the Assessing Officer for factual appreciation and decision in accordance with the law, after providing the assessee a reasonable opportunity of being heard.

Conclusion:
The appeals were allowed, setting aside the orders of the Commissioner of Income-tax (Appeals). The Assessing Officer was directed to delete the disallowance under section 40A(9) and to reconsider the additional ground on depreciation based on the retrospective amendment.