2018 (3) TMI 1756 - HC - Income Tax

Contribution made to State Renewal Fund - allowable expenditure u/s 37(1) - whether not connected with the business but is diversion of Income and not allowable u/s. 37(1) ? - HELD THAT - Issue is now covered by the decision of this Court in Principal Commissioner of Income-Tax V/s Rajasthan State Seed Corporation Ltd. 2016 (9) TMI 59 - RAJASTHAN HIGH COURT as held any normal expenditure for the welfare and benefit of employees is allowable expenditure under Section 37(1), the Tribunal has come to a finding of fact that it was a legal obligation of the respondentassessee towards contribution of the said amount to the State Renewal Fund and there being a legal obligation as well in our view the Tribunal has come to a correct conclusion. - Decided in favour of assessee. Allowability of belated payment of PF ESI - Beyond due date in respective Act - Section 43 B and not by Section 36(1)(va) r.w.s. 2(24)(x) - HELD THAT - issue is covered by decision in the case of CIT VERSUS M/S. STATE BANK OF BIKANER JAIPUR AND JAIPUR VIDYUT VITARAN NIGAM LTD. 2014 (5) TMI 222 - RAJASTHAN HIGH COURT

Summary

Issues:
1. Whether the ITAT was justified in deleting certain additions made on account of contributions to various funds.
2. Whether the ITAT was correct in holding that employees' contributions to PF and ESI are governed by Section 43B and not Section 36(1)(va) r.w.s. 2(24)(x) of the IT Act.

Analysis:

Issue 1:
The first issue pertains to the additions made on account of contributions to various funds. The court referred to a previous decision where it was held that expenditure incurred on the State Renewal Fund, created for the welfare of workers, is allowable as a deduction under Section 37(1) of the Income Tax Act if it is for business expediency. The court emphasized that any normal expenditure for the welfare and benefit of employees is allowable under Section 37(1). Consequently, the court answered this issue in favor of the assessee, stating that the contributions were for the welfare and benefit of employees and were a legal obligation, making them allowable deductions.

Issue 2:
The second issue revolves around whether employees' contributions to PF and ESI are governed by Section 43B or Section 36(1)(va) r.w.s. 2(24)(x) of the IT Act. The court noted that the controversy on this matter is pending before the Supreme Court in a specific case. Therefore, until the Supreme Court's decision, the court decided in favor of the department and against the assessee on this issue. The court mentioned that if the Supreme Court's decision favors the department, they can recover the amount.

Additional Observations:
Regarding specific questions raised in different appeals, the court made individual decisions based on the facts and arguments presented. For instance, in a particular appeal, the court mentioned that a certain question did not arise due to observations made by CIT(A), which were not challenged before the Tribunal. Consequently, the court answered that question against the department. Overall, the appeals were disposed of based on the above considerations and decisions on each issue.

This detailed analysis of the judgment from the Rajasthan High Court provides insights into the court's reasoning and decisions on the various issues raised in the appeals, ensuring a comprehensive understanding of the legal aspects involved.