2013 (5) TMI 200 - AT - Income Tax

Contribution to provident fund - addition made by AO under section 43B - CIT(A) deleted the addition - assessee is a cooperative society engaged in supply of sugar cane of it s members to sugar mills and trading of fertilizer with members etc. - Held that - Contrition to PF to permanent staff in this case goes to UP Cane Federation Trust, Lucknow which is a recognized trust headed by Cane Commissioner, UP Government constituted under the UP Cooperative Societies Act, 1965 and controlled by Cooperative Cane Union Federation and Employees PF Trust Funds Rules, 1979 through a Board of Trustees. Thus, agreeing with CIT(A) that it is a special case of its own as the assessee has a separate regulation of their own for administration of PF concerned and thus provisions of section 43B are not applicable. - the PF to permanent seasonal staff was governed by the State Government Rules. The trust created for the purpose is duly registered under the I.T. Act. By the Rules itself, the assessee was permitted to convert such contributions into members deposits and pay the stipulated interest thereon. Such interest payments having been made as per the State Government Rules are not covered u/s. 43B. Against revenue.

Summary

Issues:
1. Addition of provident fund under section 43B of the Income Tax Act, 1961.
2. Interpretation of section 40(A)(9) regarding deductions for contributions to funds.

Analysis:

Issue 1: Addition of Provident Fund under Section 43B
The case involved a cooperative society engaged in supplying sugar cane and trading fertilizer. The Assessing Officer added Rs. 68,09,589 to the income of the assessee under section 43B of the Income Tax Act, 1961, concerning provident fund contributions. The assessee argued that the provident fund amount had been credited to employees' accounts but retained by the society. The Commissioner of Income Tax (Appeals) noted that the society was directed by the Board of Trustees to retain the PF contributions for permanent seasonal staff. The Commissioner opined that as per section 43B, contributions to the UP Cane Federation Trust were not debited in the profit and loss account, making the addition unjustified. The Commissioner relied on specific regulations governing the society's PF administration and case laws to support the decision.

Issue 2: Interpretation of Section 40(A)(9)
The Commissioner referred to section 40(A)(9) regarding deductions for contributions to funds. It was highlighted that the assessee was governed by the UP Cooperative Cane Union Federation and Employees PF Trust Fund Rules, 1979, which had its unique regulations for PF administration. The Commissioner concluded that the provisions of section 43B were not applicable due to the specific nature of the case. The Tribunal supported this view, citing a previous order involving a similar case where interest payments on PF contributions were permitted under State Government Rules and not covered under section 43B.

In conclusion, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals), dismissing the Revenue's appeal. The judgment emphasized the unique regulatory framework governing the PF contributions of the cooperative society, rendering the provisions of section 43B irrelevant in this context.