1988 (4) TMI 47 - HC - Income Tax

Summary

Issues Involved:

1. Whether the assessee is entitled to the entire amount of Rs. 2,59,451 as a deduction for the initial contribution to an approved superannuation fund.
2. The applicability and legality of Notification No. SO 3433 dated October 21, 1965, issued by the Central Board of Direct Taxes.

Summary:

Issue 1: Entitlement to the Entire Deduction Amount

The primary issue was whether the assessee, a public company, could claim the entire sum of Rs. 2,59,451 as a deduction for the initial contribution made to an approved superannuation fund for the assessment year 1976-77. Initially, the assessee claimed only Rs. 41,512 based on Notification No. SO 3433 dated October 21, 1965. The Income-tax Officer allowed this amount. The assessee later appealed, arguing that the entire contribution should be deductible. The Tribunal allowed the full deduction, referencing a prior decision of the Bombay Bench of the Tribunal. The High Court scrutinized the Tribunal's decision and relevant legal provisions, including section 36(1)(iv) of the Income-tax Act and rules 87 and 88 of the Income-tax Rules.

Issue 2: Applicability and Legality of Notification No. SO 3433

The Revenue contended that the Notification limited the deductible amount to 80% of the initial contribution, spread over five years. The assessee argued that the Notification was inapplicable or ultra vires. The Court examined section 36(1)(iv), which allows deductions for contributions to approved superannuation funds, subject to limits prescribed for fund approval and conditions specified by the Board. Rules 87 and 88 set limits on annual and initial contributions, respectively. The Court found that the limits prescribed at the time of fund approval continue to apply post-approval.

The Court held that the Notification's conditions Nos. 2 and 3, which limited the deductible amount and spread it over five years, exceeded the Board's power. These conditions conflicted with the Act's provisions, which allow the entire contribution as a deduction in the year the liability is incurred. The Court invoked the doctrine of "reading down" and disregarded the conflicting conditions in the Notification.

Conclusion:

The High Court concluded that the assessee is entitled to claim the entire sum of Rs. 2,59,451 as a deduction for the initial contribution to the approved superannuation fund. The Court answered the question in the affirmative, in favor of the assessee, and against the Revenue, disregarding the conflicting conditions of the Notification.