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TMI Blog2005 (3) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... eal before the Tribunal. From the same it transpires that for the asst. yrs. 1990-91 and 1991-92 the assessee is in appeal against disallowance of interest on refinance paid to IDBI, commitment charges paid to IDBI, interest on loan in lieu of share capital paid to IDBI and right from asst. yrs. 1990-91 to 1997-98 the assessee is aggrieved against both the orders of the AO and of the learned CIT(A) for the disallowance made and confirmed relating to employer's contribution to OSFC Employees' Provident Fund. Further, the assessee is aggrieved for the asst. yr. 1990-91 against the disallowance made, for employees' own contribution to Employees' Provident Fund. Again the assessee is in appeal for asst. yrs. 1991-92 to 1997-98 against disallowance and confirmation of brokerage and underwriting commission paid on issue of bond, employees' own contribution to Employees' Provident Fund and interest paid on OSFC Employees' Provident Fund. (b) Page 2 contains assessment year wise details, statement relating to interest on refinance paid to IDBI, interest on LISC paid to IDBI, commission charges paid to IDBI, brokerage and underwriting commission on issue of bond, employees' own contributio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the Department has agitated against the acceptance of the employees' contribution to the EPF by the learned CIT(A). The AO has treated this a non-compliance of s. 43B. According to the learned CIT(A), the CAG does not approve retention of money by the assessee of the EPF fund without keeping it in any scheduled bank. Other points are ancillary points to be considered while going into the details year-wise. Now we shall proceed on the issues involved in all these appeals chronologically. Assessment year: 1990-91 5. In this appeal the assessee has agitated five grounds but the issues involved are four. Ground Nos. 1 and 2 relate to disallowance of a sum of Rs. 12,14,854 under s. 43B of the IT Act, 1961 being the share of employer's contribution to the EPF, which was disallowed by the learned CIT(A). On a perusal of the relevant portion of the order of the learned CIT(A) it transpires that the learned CIT(A) has allowed the employee's matching contribution of EPF and disallowed the employer's contribution to the EPF. After perusing ground Nos. 1 to 3 it is pertinent to note here that there is an omission somewhere either by the assessee or by the learned CIT(A) which is pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery month while disbursing the salary by deducting from the same. It is in consonance with regulation NO.7 according to the learned counsel. Again as per regulation NO.9 the assessee-corporation contributes its own contribution at a fixed rate as per decision of the Board of Administrators every month. As per regulation No. 11, according to the decision taken by the Board of Administrators at par with the provisions of EPF Act interest at a fixed rate is being duly credited in the respective accounts of each employee under the EPF Act every year, i.e., at the end of the year 31st March. Therefore, the contentions of the appellant-corporation is that one separate account is being duly maintained for the purpose of contribution of provident fund both by the employees and by the employer, interest is being paid in consonance with the EPF Act and the fund is being managed and controlled by a Board of Administrators duly elected/nominated by the corporation from amongst the directors and the employees, respectively. 5.3 During the course of argument the learned counsel further argued and replied in response to the queries made by the Bench that the employees do not have any objection t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral Provident Fund and Miscellaneous Provisions Act, 1952 (under s. 16 of the said Act) and under s. 48(2) of the SFCs Act, 1951. The assessee-corporation with prior approval of RBI and the State Government has formulated its regulations for establishment and maintenance of provident fund of its employees. 5.9 Further it has been the stand of the appellant that in cash system of accounting there should be actual or constructive payment. According to the provisions of s. 43(2) of the IT Act, 1961 the assessee paid mans actually paid or incurred according to the method of accounting upon the payees of which the profits and gains are computed under the head "Profits and gains of business or profession". Dictionary meaning of word 'realised' is to mean "convert into actuality" or "convert into money". 5.10 In order to show that the maintenance of account is proper and as per the practical guide of the accounting standard the learned counsel referred to p. 31 of July, 1997 issue of publication of the ICAI in this regard. The learned Departmental Representative on the other hand, while defending the Revenue invited our attention to p. 31 of the paper book Chapter II part 5 that tiled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their own for administration of EPF is concerned. Even relating to interest paid on outstanding provident fund dues there is no relevance with either s. 43B or s. 2(24)(x) or s. 36(1)(va) of the IT Act, 1961 as this is also made by the assessee-corporation on investments made from the fund/fund held by the corporation and utilised for the purpose of financing to the industrial unit. On this backdrop of the case both factually and legally the assessee-corporation appears to have a sound case whereas the objections raised by the Revenue are general in nature without any specific finding as to any irregularity. It will not be out of place to mention here that the IT Department has not gathered any information of violation of EPF Act and Rules from the concerned authority administering the same in the State of Orissa nor there is any complaint from any employee's side. Thus, the Revenue's treatment to the fund maintained by the assessee-corporation in general terms cannot be sustainable in view of the specific exception clause applicable to the assessee-corporation in the light of the analysis and observation made above. 5.13 Besides this, the appellant-corporation has taken resort t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strong opposition from the learned Departmental Representative on this point, we shall have to place reliance on the stand taken by the assessee-corporation on this point as their contention is based on the correspondence held in between them and IDBI and is stated to have been duly audited and approved by CAG of India. Accordingly, this point is decided in favour of the assessee and against the Revenue. 7. Next ground i.e. ground NO.5 relates to disallowance of a sum of Rs. 79,19,654 being the commitment charges paid to IDBI on borrowed money. On this ground also the stand of the assessee-corporation is that it has been duly debited on ascertainment and reconciliation which was duly approved by CAG. 7.1 The learned Departmental Representative though strongly contested this point, we find from the case record that no queries have been raised on this point nor any material has been gathered to disprove the stand of the assessee. Therefore, the stand taken by the assessee-corporation has to be accepted as it is an open declaration made before this Bench by the assessee-corporation regarding ascertainment of details from IDBI and due reconciliation and approval of CAG is there. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, the assessee's appeal is allowed for asst. yr. 1990-91. 10. Now after deliberating the issues at length for the asst. yr. 1990-91, it has been deemed proper to make a chart of both the issues involved in assessee's appeals and Departmental appeals separately in order to facilitate all quarters to be acquainted with the issues and deliberations quickly and in a smooth manner as it has been found that the issues are almost identical in both the assessee's appeal as well as the Departmental appeals. Assessee's Appeals ------------------------------------------------- ITA No. Asst. yr. Ground Remarks No. ------------------------------------------------- 78/Ctk/2003 1990-91 All Discussed in grounds detail in this order para 5 to 9.1 ------------------------------------------------- 79 to 85 1991-92 1 & 2 EPF and allowable /Ctk/2003 to (common) expenses discussed 1997-98 in para 5 to 5.14 vide order of 1990-91. ------------------------------------------------- 79/Ctk/2003 1991-92 3 Interest paid to IDBI-discussed in para 6 to 6.1 vide order of 1990-91 ------------------------------------------------- 79/Ctk/2003 1991-92 4 Commitment charges paid to IDBI- discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n vs. ITO, Ward-A, Patna on the basis of the decision of the Supreme Court of India in India Cement Ltd. vs. CIT (1966) 60 ITR 52 (SC) passed in favour of the assessee, Bihar State Financial Corporation, wherein the brokerage and incidental expenses on issue of bonds as business expenses has been allowed. "In, this case reported in (1966) 60 ITR 52 (SC) the appellant obtained a loan of Rs. 40 lakhs from the Industrial Finance Corporation secured by a charge on its fixed assets. In connection therewith it spent a sum of Rs. 84,633 towards stamp-duty, registration fees, lawyer's fees, etc. and claimed this amount as business expenditure. Held, that the amount spent was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assessee's business and was, therefore, allowable as a deduction under s. 10(2)(xv) of the Indian IT Act, 1922. The act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period, and it was irrelevant to consider the object with which the loan was obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the provisions of s. 35D of IT Act, 1961. (iv) That the expenditure cannot be allowed lawfully as per the decision of the Hon'ble Calcutta High Court in the case of Woodcrafts Ltd. vs. CIT (1992) 106 CTR (Cal) 299 : (1993) 204 ITR 545 (Cal). The learned CIT(A) in the relevant portion of his order has deleted the same justifying with the case laws cited by the assessee and the Department is aggrieved on the issue of deletion. Accordingly, we are to deliberate on the same as follows: As per the decision of the Calcutta High Court in the case of Woodcraft Ltd. vs. CIT it has been held that in this decision the decision of Union Carbide India Ltd. vs. CIT (1986) 56 CTR (Cal) 231 : (1987) 165 ITR 678 (Cal) has been followed which is held as under: "That, on the issue of bonus shares, a portion of the reserves of the company have to be transferred and shown as subscribed capital. This has nothing to do with the capital structure of the company. The profit making apparatus remains the same. There is no addition or alteration to the profit making apparatus. The total funds available with the company will remain the same. As a result of the issue of bonus shares, there will be no c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the present case. 15.1 As the matter has already dealt in depth in asst. yr. 1990-91 in assessee's appeal, it requires no more deliberation. However, to clarify the position it is analysed in brief again as under. 15.2 As per provisions of s. 2(24)(x) income certainly included the sum received by the assessee from his employees as contribution to provident fund but as has been narrated earlier, under the facts and circumstances of the case the same is deductible from the business income under s. 36(va) as the said sum (employees' contribution to the provident fund scheme) is being credited by the assessee to the employees' account in the relevant fund on or before the due date. It should not be out of place to mention herein that it has already been clarified by the assessee-corporation in this case that the assessee-corporation has been excluded from the clutches of the provident fund authorities and they have been adopting a separate provident fund account with prior approval of the RBI and the State Government and they create a liability to the employees by making and maintaining separate ledger 'accounts, by crediting the employees' provident fund along with the employer' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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