2014 (8) TMI 1199 - AT - Income Tax

Revision u/s 263 - addition on account of Damages for remittance to Pension Fund Trust and office expenses of the Chairman - HELD THAT - A bare reading of section 36(1)(iv) makes is amply clear that the sum should be contributed by the employer towards a recognized provident fund or approved superannuation funds subject to such limits as may be prescribed for recognizing provident fund or approving the superannuation fund. The section does not lay down any specific condition that the fund should be approved by the jurisdictional Commissioner or Chief Commissioner only. In the present case, the assessee is contributing in the Pension Fund Scheme jointly floated by twelve State Transport Corporations operating in different districts of the state of Tamil Nadu. All the State Transport Corporations are signatories to the Trust Deed for setting up of joint State Transport Employees Pension Fund Scheme. It is not in dispute that the said fund has been recognized by the CIT-VII, Chennai. Once the assessee is contributing towards recognized fund, the assessee is entitled to get the benefit for the contributions made to the said fund. Reimbursement of free passes - assessee is crediting the amounts received from the Government on account of issuance of passes in the year of receipt - objection raised by the Revenue is that, since the assessee is following mercantile system of accounting, the assessee should offer to tax, reimbursement amount in the year of claim itself - HELD THAT - A perusal of the records does not make it clear, whether the assessee is issuing free passes as per the scheme of Department of Social Welfare, Government of Tamil Nadu or Welfare Scheme formulated by its own and is thereafter claiming reimbursement from the Social Welfare Department. The moot point which has to be looked into for including the income in tax net is, When does the income crystalises ? In case the assessee is issuing free passes to physically handicapped, freedom fighters etc., under the scheme of Government, the assessee is assured to get the reimbursement of the amount on the issuance of passes itself. In case the claim of the assessee is subject to scrutiny by Social Welfare Department, the income crystalises after the claim of the assessee is approved by the competent authority. The Assessing Officer is directed to look into this issue and thereafter, pass necessary orders in accordance with law.

Summary

Issues:
1. Validity of deduction claimed towards Pension Fund Trust under section 36(1)(iv).
2. Treatment of reimbursement of free passes under mercantile system of accounting.

Issue 1: Validity of deduction claimed towards Pension Fund Trust under section 36(1)(iv):

The appeal was filed against the order under section 263 of the Income Tax Act, 1961 by the Commissioner of Income Tax, Salem, relevant to the Assessment Year 2009-10. The Assessing Officer had made additions to the income of the State Transport Corporation on account of "Damages for remittance to Pension Fund Trust" and office expenses of the Chairman. The Commissioner raised concerns regarding the deduction claimed by the assessee towards the Pension Fund Trust, stating that the fund was not approved by the jurisdictional Commissioner or Chief Commissioner of Income Tax. The Commissioner argued that the contributions made by the assessee were not towards an approved pension fund. However, the Tribunal found that the fund, jointly floated by twelve State Transport Corporations and recognized by the CIT-VII, Chennai, was a recognized fund. The Tribunal held that the contributions made by the assessee to the recognized fund were valid under section 36(1)(iv).

Issue 2: Treatment of reimbursement of free passes under mercantile system of accounting:

The second issue revolved around the treatment of reimbursement of free passes issued by the State Transport Corporation. The Commissioner contended that the Corporation should have recognized the reimbursement as income in the year of claim itself, as per the mercantile system of accounting. The Corporation, however, followed a practice of recognizing the income from reimbursements in the year of receipt, citing uncertainty in the acceptance of claims by the Social Welfare Department. The Tribunal noted that the timing of income recognition depended on when the income crystallized. If the passes were issued under a government scheme, income crystallized upon issuance, but if subject to scrutiny, income crystallized upon approval of the claim. The Tribunal directed the Assessing Officer to examine the issue further and make necessary decisions in accordance with the law.

In conclusion, the Tribunal partially allowed the appeal of the State Transport Corporation, upholding the validity of deductions towards the Pension Fund Trust and directing a reevaluation of the treatment of reimbursement of free passes under the mercantile system of accounting.