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2015 (8) TMI 369 - HC - Income TaxDisallowance of contribution to medical benefit scheme for the benefit of its retired employees - whether in the light of Section 40A(9) the Tribunal could not have allowed deduction under Section 37 of the Act? - Held that - Section 40A which starts with the non obstante clause. Prior to its amendment by Finance Act 2011, as per sub section (9) introduced by Finance Act, 1984 with effect from 1.4.1980, deduction of only payments for the purposes and the extent provided was permitted. Assessee does not have a case that the contribution made by it to the pension fund is payment which is permitted under Section 36. If that be so, in view of Section 40A(9), the payment made by the assessee could not have been allowed to be deducted and its disallowance by the Assessing Officer, is perfectly in line with the statutory provisions. We may also add that since sub section 9 was added to Section 40A by Finance Act, 1984, the judgment of the Madras High Court in T.Stanes& Company Limited (1974 (8) TMI 14 - MADRAS High Court ) rendered in the context of assessment years 1959-1960 to 1964-1965 has no relevance in so far as the case of the assessee is concerned. - Decided in favour of revenue.
Issues Involved:
1. Deduction of contribution to a medical benefit scheme for retired employees under Section 37 of the Income Tax Act. 2. Applicability of Section 40A(9) in disallowing deductions for certain payments made by the assessee. 3. Interpretation of the judgment of the Madras High Court in Commissioner of Income Tax v. T. Stanes & Company Ltd. Issue 1: Deduction under Section 37 of the Income Tax Act The appeal concerns the disallowance of a contribution of Rs. 1.5 crores made by the assessee to a medical benefit scheme for retired employees during the assessment year 2006-2007. The Assessing Officer disallowed this amount, but the Commissioner of Income Tax later allowed the deduction. The main question of law framed revolves around whether the assessee is entitled to claim a deduction for this contribution under Section 37 of the Income Tax Act. Issue 2: Applicability of Section 40A(9) The discussion delves into the applicability of Section 40A(9) of the Income Tax Act, which restricts deductions for certain payments made by the assessee. The Revenue contended that the Tribunal could not have allowed the deduction under Section 37 due to the provisions of Section 40A(9). This section explicitly states that no deduction shall be allowed for any sum paid by the assessee as an employer towards the setting up or contribution to any fund, trust, or institution, unless specified conditions are met under Section 36. Issue 3: Interpretation of Previous Judgment The judgment also involves the interpretation of a previous judgment by the Madras High Court in Commissioner of Income Tax v. T. Stanes & Company Ltd. The assessee relied on this judgment in support of their case, but the court clarified that the introduction of Section 40A(9) by the Finance Act, 1984, altered the landscape regarding deductions for certain payments. The court emphasized that the judgment of the Madras High Court in the context of earlier assessment years does not hold relevance to the current case due to the statutory changes. In conclusion, the High Court allowed the appeal filed by the Revenue, ruling in favor of disallowing the deduction claimed by the assessee for the contribution made to the medical benefit scheme for retired employees. The court highlighted the significance of Section 40A(9) in restricting deductions for specific payments, emphasizing that the contribution made did not fall within the permissible categories under Section 36. The court's decision was based on a thorough analysis of the statutory provisions and the precedents cited during the proceedings.
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