2015 (10) TMI 300 - AT - Income Tax

Addition on account of actual payment of pension to the employees out of contribution by the assessee to the pension fund - Held that - On perusal of the Balance Sheet for pension fund reflects that the pension contribution for the assessment year 2002-03 and the payments made to the pensioners as per Annexures-V,VI and VII totaled to ₹ 22,89,137/-. In assessment year 2003-04, the total contribution to the pension fund was ₹ 32,07,989/- and the payments made to the pensioners as per AnnexureV and VI totaled to ₹ 56,33,188/-. We find merit in the claim of the assessee that the expenditure incurred on payments being made to the pensioners is allowable in the hands of the assessee as revenue expenditure. In assessment year 2002-03 the total contribution to the pension fund during the year was ₹ 1.22 crores out of which ₹ 22,89,137/- were actually disbursed to the pensioners and hence the said expenditure of ₹ 22,89,137/- is allowable as an expenditure in the hands of the assessee for assessment year 2002-03. In assessment year 2003-04 the total contribution to the pension fund was ₹ 32,07,989/-. However, the payments made to the pensioners totaled to ₹ 56,33,188/-. We restrict the allowance of the expenditure in the hands of the assessee to the extent of pension contribution i.e. ₹ 32,07,989/- in assessment year 2003-04. In the totality of the above said facts and circumstances, we find merit in the claim of the assessee and the expenditure of ₹ 22,89,137/- is allowed in assessment year 2002-03 and expenditure of ₹ 32,07,989/- s allowed in assessment year 2003-04.

Summary

Issues Involved:
1. Deduction on account of contribution to unrecognized pension fund.
2. Allowability of actual payment of pension to employees as a deduction.

Detailed Analysis:

1. Deduction on account of contribution to unrecognized pension fund:
The primary issue in both appeals was whether the assessee could claim a deduction for contributions made to an unrecognized pension fund. During the assessment proceedings, the Assessing Officer disallowed the deduction claimed by the assessee under section 36 of the Income Tax Act, 1961, as the contributions were made to an unrecognized pension fund. The Commissioner of Income Tax (Appeals) upheld this disallowance. The Tribunal had previously remitted the matter back to the Assessing Officer to examine the claim afresh. However, in the second round of proceedings, the Assessing Officer again disallowed the deduction, stating that the contributions were not made to a recognized pension fund and thus were not allowable under section 36(1)(iv) or 36(1)(xii) of the Act. The CIT (Appeals) confirmed this view, holding that contributions to an unrecognized pension fund were not allowable under section 36(1)(iv) & (v) or section 37 of the Act.

2. Allowability of actual payment of pension to employees as a deduction:
The assessee argued that, even though the pension fund was unrecognized, the actual payments made to employees as pensions during the year should be allowed as a deduction under section 37(1) of the Act. The assessee provided detailed records of the payments made to retiring employees. For assessment year 2002-03, the contribution to the pension fund was Rs. 1,21,97,699, and actual payments made were Rs. 22,89,137. For assessment year 2003-04, the contribution was Rs. 32,07,989, and payments made were Rs. 56,33,188. The assessee contended that these actual payments should be allowed as business expenditure. The Tribunal found merit in the assessee's claim, noting that the expenditure incurred on pension payments was a revenue expenditure and allowable under section 37(1). The Tribunal allowed the deduction of Rs. 22,89,137 for assessment year 2002-03 and restricted the deduction to Rs. 32,07,989 for assessment year 2003-04, as this was the actual contribution made to the pension fund.

Conclusion:
The Tribunal allowed the appeal for assessment year 2002-03 and partly allowed the appeal for assessment year 2003-04, permitting the deduction of actual pension payments made to employees, subject to the limits of contributions made to the pension fund. The judgment emphasized that actual payments made to employees as pensions, even from an unrecognized fund, could be considered allowable business expenditure under section 37(1) of the Income Tax Act, 1961.