1983 (5) TMI 51 - AT - Income Tax

Issues Involved:
1. Deduction under section 36(1)(iv) of the Income-tax Act, 1961.
2. Recognition of the Employees' Provident Fund under section 2(38) of the Income-tax Act.
3. Impact of exemption under section 17 of the Employees' Provident Funds and Family Pension Fund Act, 1952.
4. Applicability of CBDT Circular No. 153, dated 30-11-1974.
5. Alternative argument for deduction under section 37 of the Income-tax Act.

Detailed Analysis:

1. Deduction under section 36(1)(iv) of the Income-tax Act, 1961:
The Commissioner scrutinized the ITO's assessment and found that the ITO had allowed a deduction for contributions to the West Bengal State Electricity Board Employees' Provident Fund under section 36(1)(iv) of the Income-tax Act, 1961. The Commissioner contended that this was incorrect as the fund was not a 'recognised fund' under the Act. The Commissioner argued that for a deduction under section 36(1)(iv), the fund must be approved under the Fourth Schedule of the Act.

2. Recognition of the Employees' Provident Fund under section 2(38) of the Income-tax Act:
The assessee's counsel argued that the Employees' Provident Fund was established under the West Bengal State Electricity Board Employees' Contributory Provident Fund Regulations, 1965, and was approved by the Regional Provident Fund Commissioner. The counsel contended that the fund satisfied the conditions laid down in section 2(38) of the Income-tax Act, which defines a 'recognised provident fund'. The counsel also argued that the exemption granted under section 17 of the EPF Act did not affect the fund's status as a recognised provident fund.

3. Impact of exemption under section 17 of the Employees' Provident Funds and Family Pension Fund Act, 1952:
The Commissioner argued that the fund ceased to be a recognised provident fund after being exempted under section 17 of the EPF Act. However, the assessee's counsel contended that the exemption did not alter the fund's status as it continued to operate under the administrative control of the Regional Provident Fund Commissioner. The Tribunal agreed with the assessee, noting that the exemption did not negate the fund's recognition under section 2(38).

4. Applicability of CBDT Circular No. 153, dated 30-11-1974:
The Commissioner relied on CBDT Circular No. 153, which stated that a fund exempted under section 17 of the EPF Act must be expressly recognised by the Commissioner under the Income-tax Act to enjoy the benefits of a 'recognised provident fund'. The Tribunal, however, found that the circular did not state that a fund would lose its recognised status upon receiving an exemption under section 17. The Tribunal concluded that the circular was not applicable to the assessee's case and that the fund remained a recognised provident fund.

5. Alternative argument for deduction under section 37 of the Income-tax Act:
The assessee's counsel alternatively argued that even if the fund was considered non-recognised, the contributions should be deductible under section 37 on grounds of commercial expediency. However, the Tribunal did not address this argument as it had already decided in favor of the assessee on the primary issue.

Conclusion:
The Tribunal set aside the Commissioner's order under section 263 and restored the ITO's assessment order for the assessment year 1976-77, allowing the deduction under section 36(1)(iv) for contributions to the West Bengal State Electricity Board Employees' Provident Fund. The Tribunal concluded that the fund was a recognised provident fund under section 2(38) despite the exemption under section 17 of the EPF Act and that the CBDT Circular No. 153 was not applicable in this case. Consequently, the appeal was allowed.

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