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Issues Involved:
1. Disallowance of contributions to Bata Workers Sickness Benefit Society u/s 40A(9) of the Income-tax Act, 1961. Summary: Issue 1: Disallowance of Contributions to Bata Workers Sickness Benefit Society u/s 40A(9) 4. The primary issue in ITA No. 329/C/1996 for AY 1990-91 and in ground Nos. 1 to 5 of ITA No. 1126/C/1995 for AY 1991-92 is whether the sums of Rs. 38,27,480 and Rs. 28,92,311 paid by the assessee-company to Bata Workers Sickness Benefit Society (the Society) are disallowable u/s 40A(9) of the Income-tax Act, 1961. The Ld. CIT(A) had disallowed these amounts, but the Department's appeal against this decision is also under consideration. 4.1 The assessee-company, engaged in the production and sale of footwear, contributed Rs. 38,27,430 in AY 1990-91 and Rs. 28,92,311 in AY 1991-92 to the Society, which provides medical assistance to employees. The Society is an unregistered body, not registered under the Society's Registration Act, 1860, or as a Trust or fund. The Employees State Insurance Act was not applicable to the Batanagar area, and the Society's facilities were deemed better than those under the ESI Act. The contributions were made as per standing orders and rules, which had the force of law and were part of the employment contract. However, the A.O. disallowed these contributions u/s 40A(9). 4.2 The A.O. passed an order u/s 154 for AY 1991-92, disallowing the contributions after giving notice to the assessee and considering their replies. 4.3 The assessee appealed to the First Appellate Authority against the A.O.'s orders u/s 143(3). 5. The Ld. CIT(A) confirmed the A.O.'s findings, stating that the Society was not formed under any law but was an agreement between the assessee and its employees. Thus, the Society's fund did not have statutory formation. 6. During the appeal hearing, the Ld. Counsel for the assessee argued that the Society, formed in 1953, provided medical relief to employees, and contributions were made as per standing orders and rules certified under the Industrial Employment (Standing Orders) Act, 1946. The agreements between the assessee and employees had statutory force under the Industrial Dispute Act, 1947, making the contributions obligatory. 7. The Ld. D.R. justified the Ld. CIT(A)'s orders, arguing that the Society was not a recognized fund u/s 40A(9) and contributions to non-statutory funds are disallowed per CBDT Circular No. 387 dated 6th July, 1984. 8. The Tribunal considered the orders, submissions, and relevant provisions, including section 40A(9) and Circular No. 387. 9. Section 40A(9) disallows deductions for contributions to any fund, trust, etc., except for recognized provident funds, approved superannuation funds, approved gratuity funds, or as required by any other law. 10. The Tribunal noted that the contributions were not towards recognized or approved funds, so the question was whether they were required by any other law. 11. The Society's constitution required all employees to become members and contribute to the fund, managed by a Committee of Management. The standing orders and rules, certified under the Industrial Employment (Standing Orders) Act, 1946, had statutory force. 12. The Tribunal considered whether contributions pursuant to settlements under the Industrial Dispute Act, 1947, could be regarded as required by law. 13-16. The Tribunal referred to various judicial decisions, including General Fibre Dealers (P.) Ltd., India Pistons Repco Ltd., Raasi Cement Ltd., and Travancore Cochin Chemicals Ltd., which supported the view that contributions made under statutory obligations or settlements with employees are not disallowable u/s 40A(9). 17. The Tribunal concluded that the contributions were a legal obligation under the Industrial Employment (Standing Orders) Act, 1946, and the Industrial Disputes Act, 1947, and thus not hit by section 40A(9). The contributions were also allowable u/s 37(1) as they were bona fide for employee welfare. 18. The Tribunal reversed the orders of the authorities below, allowing the appeals for AY 1990-91 and AY 1991-92. 19-27. [These paras are not reproduced
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