2017 (6) TMI 1234 - AT - Income Tax

Disallowance of deduction towards payment of PF and gratuity - Gujarat Cooperative Societies Act, 1961 ( GCSA ) authorizes assessee to establish a provident fund for its employees which will be governed by Employees Provident Fund Act, 1952 - Held that - A fund which has been constituted under the GCSA will be treated at par with a fund constituted under scheme formulated as per the Employees Provident Fund Act, 1952. Thus, a fund which has been constituted under section 72 of the GCSA and administered under section 71 of this Act would be treated as a fund contemplated in be definition of Section 2(38) of the Income Tax Act. Thus, it is observed that fund constituted by the assessee under GCSA is to be treated at par with, fund recognized by the Chief Commissioner or established under the scheme formulated under the Provident Fund Act, as provided u/s.2(38) of the Act - section 36(l)(iv) and section 40A(9) would come in picture. They provide deduction of any expenditure incurred by assessee by way of contribution towards recognized fund. The assessee fulfills all these conditions. It has been allowed this deduction in the Asstt. Years 2004-05, 2006-07, 2008-09, 2009-10 and 2011-12. The assessment orders were passed under section 143(3) of the Income Tax Act. We allow the appeal of the assessee and direct the AO to grant deduction of amounts paid by the assessee towards provident fund established by it under section 72 of the GCSA. - Decided in favour of assessee

Summary

Issues:
Appeal against disallowance of deduction for PF and gratuity contribution.

Analysis:
The appellant, a cooperative society, challenged the disallowance of deduction amounting to ?1,33,419 by the AO for PF and gratuity contributions. The AO disallowed the claim stating that the provident fund operated by the appellant was unrecognized, not authorized, and the contributions were not deposited in the provident fund account. The CIT (A) upheld the AO's decision.

The appellant contended that under the Gujarat Cooperative Societies Act, it was authorized to establish a provident fund for employees, governed by the Employees' Provident Fund Act, 1952. The fund was independent, and the contributions deserved deduction. Sections 71 and 72 of the GCSA were cited, along with relevant sections of the Income Tax Act.

Section 71 of GCSA allows investment of funds, while Section 72 pertains to the establishment of an employees' provident fund. The fund should not be used in the business of the society and must be administered as per the Act. Sections 36(1), 40A(9), and 2(38) of the Income Tax Act were also highlighted, defining recognized provident fund and allowing deductions for contributions.

The Tribunal noted that the fund established by the appellant under GCSA should be treated at par with a fund recognized by income tax authorities or established under the Employees' Provident Fund Act, 1952. Considering past assessment years and compliance with relevant provisions, the Tribunal allowed the appeal, directing the AO to grant the deduction for amounts paid towards the provident fund established under GCSA.

In conclusion, the Tribunal allowed the appeal of the appellant, emphasizing the validity of the fund established under GCSA and its eligibility for deduction under the Income Tax Act.