2015 (8) TMI 1534 - AT - Income Tax

Disallowance being the contribution made to employees superannuation fund - whether the contribution made by the assessee is allowable u/s 37? - HELD THAT - In the case before the Madras High Court, Kattabomman Transport Corporation paid to the Government in order to enable the Government to credit the amount so paid to the Provident Fund Account of the Government employees who were at the point of time working in the Transport Corporation. The Government, after receipt of the amount from the Transport Corporation, credited to the Provident Fund Account of the concerned employees. In those circumstances, the Madras High Court found that the payment is not in any way affected by sec. 36 of the Act. The payment so made is deductible under sec. 37 of the Act, being part of the business expenditure. In this case also, by virtue of operation of section 20 of Tamilnadu Maritime Board Act, the erstwhile Government employees of Tamilnadu Port Department became the employees of Tamilnadu Maritime Board. The Government clarified in the letter dated 21.11.1996 that the employees so allotted to the Tamilnadu Maritime Board will have the same tenure, remuneration, rights and privileges - if the claim could not be allowed u/s 36 of the Act, the same has to be allowed u/s 37. Payment made by the assessee to the extent has to be treated as business expenditure in the hands of the assessee in view of the judgment of the Madras High Court in Kattabomman Transport Corporation Ltd. 1998 (9) TMI 2 - MADRAS HIGH COURT - AO is directed to allow the claim of the assessee u/s 37. Appeal of the assessee stands allowed.

Summary

Issues:
Disallowance of contribution to employees' superannuation fund.

Analysis:
The appellant contested the disallowance of Rs. 3,69,63,658 made towards the contribution to the employees' superannuation fund. The appellant argued that after the enactment of the Tamilnadu Maritime Board Act, employees of the former Tamilnadu Port Department automatically became employees of the Tamilnadu Maritime Board with the same rights and privileges. The appellant referred to a Government order and highlighted that the superannuation fund was established post this transition. The CIT approved the fund with retrospective effect, but the Assessing Officer disallowed the claim as the approval was not granted for the relevant year. The appellant sought allowance under Section 37 of the Act, citing a judgment by the Madras High Court.

The Departmental Representative contended that the approval for the superannuation fund was granted for a subsequent year, thus the deduction could only be claimed for that year. Referring to Sections 36(1)(iv) and 36(1)(v) of the Act, it was argued that only contributions to approved funds are deductible. Since the fund was not approved for the year in question, the deduction was not permissible.

The Tribunal analyzed the situation, noting that employees were transferred to the Maritime Board with the same terms and conditions. Drawing parallels to a previous case before the Madras High Court, the Tribunal concluded that if the claim could not be allowed under Section 36, it should be allowed under Section 37 of the Act. The Tribunal emphasized that the payment made by the appellant was a business expenditure, akin to the precedent set by the Madras High Court. Consequently, the Tribunal directed the Assessing Officer to allow the claim under Section 37 of the Act, overturning the decisions of the lower authorities.

In conclusion, the appeal of the assessee was allowed, and the order was pronounced in open court on 21st August 2015 in Chennai.