2024 (12) TMI 916 - HC - Income Tax

Addition on account of contributions to unrecognised provident fund and unapproved pension fund - HELD THAT - ITAT vide its judgment noticed the view taken in cas Decom Marketing Pvt. Ltd. 2001 (6) TMI 54 - GUJARAT HIGH COURT that the contributions made to the Provident Fund Act, 1925 would therefore, be eligible for registration and as the Trust of the assessee Corporation was duly recognized by CIT. Assessee had duly discharged its onus, the appeal therefore of the assessee is found to have been allowed rightfully and the question of law as framed by this Court (i) is answered in favour of assessee. Allowance of an expenditure of the nature described in Section 36 (1) (iv) as u/s 37 (1) - HELD THAT - This Court framed the aforesaid question of law based on the judgment of Sony India P.Ltd 2006 (6) TMI 76 - DELHI HIGH COURT which held that such expenditure while depositing amount in Provident Fund, is not allowable. We notice that the judgment passed by the Delhi High Court has failed to take notice of the judgment passed by this Court in case CIT Vs. Punjab Financial Corporation 2007 (3) TMI 162 - HIGH COURT, PUNJAB AND HARYANA and therefore, a different view was taken by the Delhi High Court and the same could not be binding upon this Court as it is a settled law that earlier judgment passed by this Court would have a binding precedential value over and above any different view taken by any other High Court. The law has been settled by the Supreme Court in Official Liquidator Vs. Dayanand 2008 (11) TMI 679 - SUPREME COURT wherein held the law laid down in a decision delivered by a Bench of larger strength is binding on any subsequent Bench of lesser or co-equal strength and it would be inappropriate if a Division Bench of two Judges starts overruling the decisions of Division Benches of three Judges. Thus, question No. (ii) is also answered in favour of the assessee Liability payable by the assessee on account of electricity duty payable can be set off by way of allotment of equity shares and that it amounts to discharging of liability u/s 43B - HELD THAT - The word actually paid has been, therefore, used only in the proviso, while the explanation lays down circumstances where the deduction is not allowable. Thus, as per the revised return filed by the assessee, the liability discharged towards the Government relating to Electricity duty was payable from the allotment of equity of Rs. 52.41 crores by Government of Haryana to the said extent, the same was adjusted i.e. Rs. 44 Crores. The shares being part of the funds allotted by the Government of Haryana, the same cannot be said to have been acquired from other sources and was therefore, allowable in terms of Section 43 (d) of the IT Act, 1961, accordingly the present appeal is hereby dismissed.

Summary

Issues Involved:

1. Deductibility of contributions to unrecognized provident fund and unapproved pension fund.
2. Applicability of the Delhi High Court's judgment in Sony India P. Ltd. vs. CIT concerning Section 36(1)(iv) and Section 37(1) of the Income Tax Act, 1961.
3. Treatment of electricity duty liability set off by allotment of equity shares under Section 43B of the Income Tax Act, 1961.

Detailed Analysis:

1. Deductibility of Contributions to Unrecognized Provident Fund and Unapproved Pension Fund:

The primary issue was whether the contributions made by the assessee to an unrecognized provident fund and an unapproved pension fund were deductible. The ITAT relied on the precedent set by the Punjab and Haryana High Court in 'CIT Vs. Punjab Financial Corporation Ltd', which held that contributions to the provident fund under the Provident Fund Act, 1925, were deductible even if the fund was unrecognized, provided the expenses were made wholly and exclusively for the purpose of business and were neither capital in nature nor personal. The court affirmed this position, stating that Section 36(1)(iv) does not specifically bar deductions for contributions made under the Provident Fund Act, 1925. The court concluded that the ITAT was correct in allowing the deduction, thus answering the question in favor of the assessee.

2. Applicability of the Delhi High Court's Judgment in Sony India P. Ltd. vs. CIT:

The second issue revolved around whether the ITAT erred in ignoring the Delhi High Court's judgment in 'Sony India P. Ltd. vs. CIT', which suggested that allowing such deductions under Section 37(1) would render the conditions of Section 36(1)(iv) nugatory. The court clarified that the Delhi High Court's judgment did not consider the precedent set by the Punjab and Haryana High Court in 'CIT Vs. Punjab Financial Corporation Ltd'. The court emphasized the principle of binding precedents, stating that a judgment from a larger bench or an earlier decision from the same court holds greater authority over decisions from other high courts. Consequently, the question was resolved in favor of the assessee, reaffirming the binding nature of its previous judgment over the Delhi High Court's decision.

3. Treatment of Electricity Duty Liability Set Off by Allotment of Equity Shares:

The third issue concerned whether the discharge of electricity duty liability through the allotment of equity shares amounted to "actual payment" under Section 43B of the Income Tax Act, 1961. The ITAT had observed that the liability was discharged by allotting equity shares worth Rs. 52.41 crores, sanctioned by the Government of Haryana, against the electricity duty payable. The court noted that Section 43B requires liabilities to be "actually paid," but in this context, the discharge through equity shares was considered a valid form of payment as it was directly sanctioned by the government and not acquired from other sources. The court found no infirmity in the ITAT's decision, thus dismissing the appeal and affirming that the set-off by equity shares constituted actual payment under the law.

In conclusion, the court dismissed the appeal, affirming the ITAT's decisions on all three issues, and ruled in favor of the assessee. All pending applications were also disposed of accordingly.