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TMI Blog2025 (1) TMI 1296X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 (1) (iv) and thus not liable to be allowed as deductions bearing in mind the provisions made in Section 40A (10) - HELD THAT:- The factual position which had fallen for notice of the Calcutta High Court in Exide Industries [2022 (9) TMI 1259 - CALCUTTA HIGH COURT] and which lead it to draw a distinction between an initial or qualificatory contribution as distinguished from a contribution made in a particular year in discharge of employer obligations. It thus held that the limits that the Board could prescribe would only apply to an initial or an ordinary annual contribution. Any contribution made additionally in discharge of an overarching obligation would thus not be rendered as a disallowable expense. We find ourselves in agreement with the view expressed in Exide Industries.
Appeal decided in favour of the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... were incurred recently for marketing the Resurgent Bonds after the nuclear explosion in India to obtain the necessary foreign exchange. For that, counters were opened outside India for soliciting and mobilizing foreign currency deposits from NRI's and for advertising and explaining the RBI Circulars, the tenure of NRI Deposits/ Interest Rates etc. This entire business was managed and controlled from India in accordance with RBI guidelines and was totally and entirely India-centric. Therefore, it was claimed that such expenses were legitimately allowable in the computation of Indian business income. These foreign currency deposits were then deployed in India at the various retail branches of the Bank across the country. The bank's deposit base in foreign currency deposits increased and this furthered its capacity to lend in foreign currency to borrowers within India. The interest income earned there from was offered for tax within India. Regarding the point that this expenditure was in the nature 'head office expenses', it was submitted that 'Head Office expenses' as defined in section 44C referred to 'executive and general administration expenditure. Spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These expenses incurred for procurement of business cannot be understood as Head Office expenses and the learned Assessing Officer, therefore, erred in treating them as head Office expenses within the meaning of section 44C of the Act. We, therefore, direct the learned Assessing Officer to allow the assessee deduction of actual expenditure basis and for that purpose if necessary the learned Assessing Officer may withdraw corresponding deduction allowed, if any under the provisions of section 44C." 4. As has been noted by the Tribunal, the expenses were incurred for the purposes of inviting NRIs' to open deposits in the Indian branches of the respondent assessee. The aforesaid initiative was predicated upon the circular of the RBI itself which is dated 16 October 1991. Since this was expenditure which was incurred solely for the purpose of the business of the respondent assessee in India, we find no merits in the challenge which stands mounted to the order of the Tribunal in this respect." 3. That leaves us to examine the issue which is raised in Question (ii). The disputes centres around the extent of contributions which were made by the respondent/assessee to a recognised super ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) (iv), the Board issued a notification dated 21-10-1965 which was relied upon by the assessing authority. It reads thus: "Contributions to Approved Superannuation Fund Conditions specified under clause (iv) of sub-section (1) for the purposes of deduction of certain contributions.--In exercise of the powers conferred by clause (iv) of sub-section (1) of Section 36 of the Income Tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby specified the following conditions for the deduction of contributions, not being annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head „Salaries' or to the contributions or to the number of members of the fund namely: 1. The total amount of contribution that shall be taken into account for the purposes of this notification shall not exceed twenty-five per cent of the employee's salary for each year of his past service with the employer as reduced by the employer's contribution, if any, to any provident fund (whether recognised or not) in respect of that employee for each such year. 2. Subject to condition 1, eighty per cent of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two parts; one is the requirement that the amount must be actually paid and the other is that the deduction shall only be of 80%. Taking the second part first, we see no justification for it. The section states that the deduction shall be wholly allowed. It permits the Board to specify conditions but conditions cannot have the effect of curtailing the scope of the deduction granted by the section. The amplitude of the deduction permitted by the section cannot be cut down under the guise of imposing a "condition". In fact, this is not a condition but an impermissible attempt to rewrite the section. As to the first part, in the cases before us, the payment had in fact been made and we do not need to dilate; but we should point out that Section 36 (1) (iv) itself speaks of "any sum paid"." 10. As is manifest from the above, the Supreme Court found that Section 36 (1) (iv) used two prescriptive conditions insofar as contributions that could be made by an employer and represented in the shape of the phrases "any sum paid" and "shall be allowed". 11. As we read Paragraph 10 extracted above, it becomes evident that it was found that the prescription of limits to the extent of contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax (Appeals) -I, Kolkata CIT (A) contending that under rule 87 of the said Rules normal and annual contribution by the employer shall not exceed 27% of the salary of the employee for each year as reduced by the employer's contribution to the provident fund in respect of the same employee for the year. In terms of rule 88, the limit is 25% of the employee's salary of each year up to 21-9-1997 and 27% of the employee's salary for each year after 21-9-1997. The assessee contended that rules 87 and 88 refer to initial contribution and regular contribution and the lump sum contribution made by the assessee is neither ordinary contribution nor initial contribution and the limits prescribed in rule 87 and rule 88 shall not apply to such lump sum contribution. The CIT (A) did not aggrieve with the assessee and by order dated 28-3-2007 dismissed the appeal. Aggrieved by the same the assessee had preferred appeal before the learned Tribunal. The Tribunal by the impugned order aggrieved by the contention raised by the assessee and after taking note of the decision of the Co-ordinate Bench of the Tribunal in the case of Asstt. CIT v. Glaxo Smithkline Pharmaceuticals [IT Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Subject to any condition which the Board may think fit to specify under clause (iv) of sub-section (1) of section 36, the amount to be allowed as a deduction on account of an initial contribution which an employer may make in respect of the past services of an employee admitted to the benefits of a fund shall not exceed twenty-five per cent of the employee's salary for each year [up to the employee's salary for each year] of his past service with the employer as reduced by the employer's contribution, if any, to any provident fund (whether recognised or not) in respect of that employee for each such year." 6. In terms of the above rules, what is required to be seen is whether there is any ceiling fixed in respect of the contribution which have been made by the respondent/assessee and whether it was towards an ordinary annual contribution or whether it was towards an initial contribution. The factual position is not in dispute which have been noted not only by the learned Tribunal but also by the CIT(A). In terms of the above rules, a contribution to an approved superannuation fund is deductible as long as the quantum of the contribution does not exceed the prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmaceuticals (supra) has been affirmed by the High Court of Judicature at Bombay. 8. For the above reasons, we find there are no ground to interfere with the order passed by the learned Tribunal. Accordingly, the appeal filed by the revenue (ITA/95/2018) is dismissed and the substantial question of law is answered against the revenue." 16. We find that the factual position which had fallen for notice of the Calcutta High Court in Exide Industries and which lead it to draw a distinction between an initial or qualificatory contribution as distinguished from a contribution made in a particular year in discharge of employer obligations. It thus held that the limits that the Board could prescribe would only apply to an initial or an ordinary annual contribution. Any contribution made additionally in discharge of an overarching obligation would thus not be rendered as a disallowable expense. We find ourselves in agreement with the view expressed in Exide Industries. 17. In the facts of the present case, the Tribunal has noted the stand of the appellant leading up to the making of the contribution in the following words:- "55. The assessee in the year under consideration has claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that this additional contribution is allowable as a deduction in accordance with the judgment of the Hon'ble Supreme Court it) CIT VS. Sirpur Paper Mills reported in 237 ITR 41 (SC) where the Hon'ble Supreme Court held that restricting condition laid down by CBDT Circulars cannot curtail scope of deduction granted by the statute under the Income Tax Act. The head notes read as follows:- "Section 36(1) (1) (v) of the Income-tax AC0 19611 states that the deductions provided in the clauses thereof "shall be allowed" when computing income under section 28. Clause (iv) lists as so deductible any sum paid by the assessee as an employer by way of contribution towards a recognized provident fund or an approved superannuation fund subject to limits that may be prescribed forthe purposes of recognition of these funds and subject also to such conditions as the Board might think to specify in case where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the number of members of the fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a permissible outgoing or deduction in computing the taxable profits of a trader." Applying the law laid down by the above Hon'ble courts to the facts of our case it may please be seen that in the present case the liability to pay pension is certain and definite. 58. On the other hand Ld. DR submitted that the assessee can claim the deduction on account of approved pension fund within the limit as specified u/s 36 (1) (iv) of the Act. Ld. DR further submitted that the claim was made by the assessee through a separate letter and no such claim was made in the Income Tax return. Ld. DR in support of his claim relied on the judgment of Hon'ble Apex Court in the case of Goetz India Ltd Vs. CIT reported in 284 ITR 323(SC). The Id. DR vehemently supported the order of authorities below. 59. We have heard the rival contentions and perused the material available on record. In the instant case the issue relates to the confirmation of the addition made by the assessee to approved pension fund for Rs. 9.81 crores. The assessee in its computation of income has disallowed the claim of Rs. 9.81 crores but claimed the deduction of the said amount before the Ld. CIT(A). However the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he employees salary and there. is no dispute that this is a condition which the Board is empowered to impose having regard to the provisions in this behalf in rule 88. The second condition is that only 80 percent of the amount actually paid by the employer can be allowed as a deduction. This really falls into two parts; one is the requirement that the amount 'must be actually paid and the other is that the deduction shall 'only be of 80 percent. Taking the second part first, there is no justification for it. The section states that the deduction shall be wholly allowed. It permits the Board to specify conditions but cannot have the effect of curtailing the scope of the deduction granted by the section. The amplitude of the deduction permitted by the section cannot be. cut down under the guise of imposing a 'condition', In fac0 this is not a condition but an impermissible attempt to rewrite the section. As to the second part, section 36 (1) (iv) Itself speaks of 'any sum paid'. The last condition imposed by the said notification is that the deduction shall be spread out equally over a period of five years commencing with the assessment year relating to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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