2022 (9) TMI 1259 - HC - Income Tax

Disallowance being contribution to the approved pension fund - whether there is any ceiling fixed in respect of the contribution which have been made by the respondent/assessee? - whether it was towards an ordinary annual contribution or whether it was towards an initial contribution? - HELD THAT - As noticed from the rules, the limitations have been prescribed only for the initial contribution and ordinary annual contribution to the funds. Thus, the consequence that would follow is that any other contribution made other than initial contribution or an ordinary annual contribution, would not be covered under the rules and no ceiling has been fixed with regard to the amount of such contribution. This has not been disputed by the revenue that the amount paid by the respondent/assessee in excess of 27% of the salaries of the employees are neither towards ordinary annual contribution nor towards initial contribution and the payment was necessitated due to short-fall discovered in the course of actuarial valuation of the funds which is in exceptional circumstances and has been made to ensure that the superannuation funds will be able to discharge its obligation to the employees. We are satisfied that the amount which was remitted by the respondent/assessee is neither towards an initial contribution nor towards an ordinary annual contribution and, therefore, the ceiling fixed under the rules will not apply to such a contribution. That apart, this contribution had to be made considering the peculiar circumstances and it was a one-time payment, therefore we are of the view that the learned Tribunal rightly allowed the appeal filed by the assessee. That apart the decision in the case of Glaxo Smithkline Pharmaceuticals 2011 (1) TMI 1530 - ITAT MUMBAI has been affirmed by the High Court of Judicature at Bombay 2013 (3) TMI 759 - BOMBAY HIGH COURT We find there are no ground to interfere with the order passed by the learned Tribunal. Accordingly, the appeal filed by the revenue dismissed.

Summary

Issues:
1. Interpretation of deduction scheme for contribution to an approved pension fund under Section 36(1)(iv) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Interpretation of deduction scheme for contribution to an approved pension fund under Section 36(1)(iv) of the Income Tax Act, 1961

The primary issue in this appeal was the disallowance of a contribution to an approved pension fund amounting to Rs. 9,14,70,000. The Assessing Officer rejected the deduction scheme of the assessee, citing Section 36(1)(iv) of the Act and Rules 87 and 88 of the Income Tax Rules, 1962. The assessee contended that the lump sum contribution made did not fall under the categories of initial or ordinary annual contributions as specified in the rules. The Commissioner of Income Tax (Appeals) dismissed the appeal, leading the assessee to approach the Tribunal. The Tribunal, considering a similar case precedent, allowed the appeal.

In the analysis, the Court examined Section 36 of the Act, particularly Sub-Section (1) which allows deductions for various matters. Clause-(iv) of Section 36(1) pertains to the deduction of sums paid by an employer towards a recognized provident fund or an approved superannuation fund, subject to prescribed limits and conditions. The Court highlighted the provisions in Part-B of the Fourth Schedule regarding approved superannuation funds, emphasizing the power of the Board to frame rules limiting contributions. Rules 87 and 88 of the Income Tax Rules, 1962 were deemed relevant.

The Court emphasized that the contribution to an approved superannuation fund is deductible as long as it does not exceed the prescribed limit for initial or ordinary annual contributions. It was noted that no ceiling was fixed for contributions other than initial or ordinary annual ones. The Court acknowledged that the excess contribution made by the assessee was due to actuarial valuation shortfalls, ensuring fund obligations to employees were met. The Tribunal's decision to allow the appeal was supported by the Court, which also referenced a previous decision upheld by the High Court of Judicature at Bombay.

The Court declined to delve into Section 37 of the Act for allowance of claimed expenditure, citing conflicting Supreme Court decisions. Ultimately, the Court upheld the Tribunal's decision, dismissing the revenue's appeal and ruling against the revenue on the substantial question of law.

In conclusion, the judgment provided a detailed analysis of the interpretation of the deduction scheme for contributions to an approved pension fund under the Income Tax Act, emphasizing the specific rules governing such deductions and the exceptional circumstances justifying the excess contribution made by the assessee.