1989 (11) TMI 109 - AT - Income Tax

Summary

Issues: Disallowance of company's contribution towards provident fund of directors under the Employees' Provident Fund Act, 1952; Interpretation of the Scheme of the E.P.F. Act; Recognition of contributions to the Employees' Provident Fund as contributions to a recognized Provident Fund; Disallowances under sec. 37(3A) for the assessment years 1980-81 and 1981-82.

Analysis:
1. The primary issue in this case pertains to the disallowance of the company's contribution towards the provident fund of three directors under the Employees' Provident Fund Act, 1952. The Income Tax Officer (ITO) disallowed the contributions on the grounds that the directors were drawing salaries exceeding Rs. 1,000 per month, making them ineligible under the Act. This disallowance was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. However, the Appellate Tribunal noted that the Scheme of the E.P.F. Act allows for the enrollment of employees with salaries exceeding Rs. 1,000 per month at the discretion of an officer not below the rank of Assistant Provident Fund Commissioner. The Tribunal found that the directors were eligible for enrollment as members of the fund based on correspondence indicating rectification of defects in the declaration, thus making the contributions valid under the Act.

2. The Tribunal further analyzed the legal framework to determine the recognition of contributions to the Employees' Provident Fund as contributions to a recognized Provident Fund. Referring to Section 9 of the E.P.F. Act and the definition of 'Recognised Provident Fund' in the Income Tax Act, the Tribunal concluded that all necessary criteria were satisfied, warranting the allowance of the deductions claimed by the assessee. The Tribunal directed that the deductions be allowed accordingly.

3. Additionally, a ground was raised regarding disallowances made under section 37(3A) for the assessment year 1980-81. Although this ground was not pressed during the hearing, the Tribunal acknowledged its existence. For the assessment year 1981-82, a similar ground was raised concerning the disallowance under section 37(3A). The Tribunal noted that the provision itself stood omitted with effect from 1-4-1981. The Tribunal directed rectification of the disallowance made by the ITO to align with the omission of the provision, thereby allowing the appeal for the second assessment year.

4. In conclusion, the Appellate Tribunal partially allowed the appeal for the first assessment year and fully allowed the appeal for the second assessment year, based on the findings related to the disallowance of company contributions towards the provident fund, interpretation of the E.P.F. Act, and rectification of disallowances under section 37(3A).