1980 (5) TMI 27 - HC - Income Tax

Summary

Issues:
Deduction claimed for contributions to Employees' Provident Fund under U.P. Co-operative Societies Act for assessment years. Interpretation of statutory liability under U.P. Co-operative Societies Act for deductions. Allowability of contributions made to Employees' Provident Fund under Income Tax Act, 1961. Compliance with provisions of U.P. Co-operative Societies Act regarding establishment and management of contributory provident fund. Eligibility of claimed expenditure under section 37 of Income Tax Act, 1961.

Analysis:
The judgment pertains to the Allahabad District Co-operative Bank Ltd. claiming deductions for contributions to the Employees' Provident Fund under the U.P. Co-operative Societies Act for various assessment years. The Income Tax Officer (ITO) initially rejected the claim, stating that the fund was not set up in accordance with the law and was part of the income-earning funds of the bank. This decision was upheld by the Appellate Assistant Commissioner (AAC). However, the Income-tax Appellate Tribunal allowed the deduction under section 37 of the Income Tax Act, 1961, considering it as a statutory liability under the U.P. Co-operative Societies Act.

Upon appeal to the High Court, it was observed that the Tribunal did not provide findings on crucial factual aspects, such as whether the bank had indeed established a contributory provident fund as required by the U.P. Co-operative Societies Act. Consequently, the Tribunal was directed to provide a supplementary statement of the case to address these aspects.

The Tribunal's subsequent findings revealed that while the bank had set up a provident fund and maintained accounts for employees, the balance in the fund remained invested in the bank's business and formed part of its assets. This led to the conclusion that the bank did not establish an Employees' Provident Fund as specified by the U.P. Co-operative Societies Act. Therefore, the claimed expenditure did not qualify for deduction under section 37 of the Income Tax Act.

The High Court emphasized that the mere obligation to establish a fund under the U.P. Co-operative Societies Act did not automatically create a fund, and the bank's liability to contribute arose only upon the establishment of such a fund. As the bank's contributions were not exclusively for the business purposes and the fund was not managed as required by the Act, the claimed deductions were disallowed.

In conclusion, the High Court ruled against the bank, stating that the claimed contributions to the Employees' Provident Fund were not eligible for deduction under the Income Tax Act. The decision favored the revenue department, and costs were awarded to the Commissioner.