2014 (11) TMI 947 - HC - Income Tax

Contribution made to staff benevolent fund - Whether the Tribunal is right in deleting the disallowance made u/s 40A(9) being contribution to the staff benevolent fund even though such fund was not recognised nor approved in terms of Section 2(5) and (6) of the Income Tax Act Held that - A payment of ₹ 14 lakhs was made to the Staff Benevolent Fund - The assessee in order to meet with the requirements of the employees formed a fund for the benefit of the staff - the assessee maintained complete accounts of the fund and also got it audited regularly the Tribunal was rightly of the view that the object of the statute vide the circular was to discourage creation of bogus trust for the purpose of availing deduction only - the assessee contributed the amount to the staff benevolent fund which was created for the benefit of the staff and family members relying upon the Circular No. 307 issued by CBDT on 06.07.1904 and Cheran Engineering Corporation Ltd. vs. Commissioner of Income tax 1998 (2) TMI 74 - MADRAS High Court Section 40A(9) is not applicable thus, the order of the Tribunal is upheld Decided against revenue

Summary

Issues:
1. Interpretation of Section 40A(9) - Disallowance of contribution to staff benevolent fund.
2. Allowability of deduction for expenses incurred for employee welfare.
3. Application of circulars and case laws in determining deductibility of expenses.

Interpretation of Section 40A(9) - Disallowance of contribution to staff benevolent fund:
The High Court considered the appeal challenging the order of the Income Tax Appellate Tribunal disallowing a contribution of Rs. 14 lakhs to the staff benevolent fund under Section 40A(9) for the assessment year 1991-92. The Assessing Officer disallowed the contribution as it did not fall under recognized funds. The Tribunal, relying on circulars and case law, allowed the deduction, emphasizing the genuine nature of the fund. The Court upheld the Tribunal's decision, noting that the fund was created for employee welfare, and the contribution was genuine and beneficial. The Court found no reason to interfere with the Tribunal's factual findings.

Allowability of deduction for expenses incurred for employee welfare:
The Court examined the nature of expenses incurred by the assessee for the benefit of employees, including cultural programs, death assistance, educational aid, gifts, honorarium, medical aid, and more. The Assessing Officer disallowed the expenses under Section 40A(9) due to the fund not being recognized. However, the Tribunal allowed the deduction, emphasizing the genuine welfare nature of the expenses. The Court concurred with the Tribunal's findings, highlighting the legitimate purpose of the expenses for employee welfare, leading to the dismissal of the appeal.

Application of circulars and case laws in determining deductibility of expenses:
The Court analyzed circular no. 307 issued by CBDT and relevant case laws to determine the deductibility of expenses incurred for employee welfare. The Tribunal relied on the circular to allow the deduction, emphasizing the genuine nature of the expenses. The Court also referenced case law to support the Tribunal's decision, noting that the expenses were genuinely incurred for employee welfare. The Court dismissed the appeal, affirming the Tribunal's findings and the deductibility of the expenses based on the welfare purpose.