Delhi High Court
The Commissioner Of Income Tax – … vs Standard Chartered Grindlays Ltd on 16 January, 2025
Author: Yashwant Varma
Bench: Yashwant Varma
$~88
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 16.01.2025
+ ITA 388/2019
THE COMMISSIONER OF INCOME TAX -
INTERNATIONAL TAXATION -3 .....Appellant
Through: Mr. Indruj Singh Rai, SSC with
Mr. Sanjeev Menon, Mr. Rahul
Singh, JSCs, Mr. Anmol Jagga
& Mr. Gaurav Kumar, Advs.
versus
STANDARD CHARTERED GRINDLAYS
LTD .....Respondent
Through: Ms. Shashi M. Kapila, Mr.
Pravesh Sharma & Mr. Sushil
Kumar, Advs.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE HARISH VAIDYANATHAN
SHANKAR
JUDGMENT
YASHWANT VARMA, J. (Oral)
1. This appeal is directed against the order of the Income Tax
Appellate Tribunal1 dated 30 November 2017 and came to be
admitted on 15 April 2019 on the following question of law:-
“i) Whether the ITAT erred in allowing the deduction claimed by
the assessee in respect of the expenses incurred on soliciting and
mobilization of foreign currency deposits from Non-Resident
Indians on the assessee’s Indian business in the backdrop of Section
44C of the Income Tax Act, 1961?
1
Tribunal
ITA 388/2019 Page 1 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
ii) Whether the Ld. ITAT erred in allowing the amount of Rs. 9.81
crores as expenditure on account of contribution to approved
pension funds ignoring the provisions of Section36(l)(iv) and
40A(9) of the Act read with Rule 87 of the Income Tax Rules,
1962?”
2. Insofar as Question (i) is concerned and pertains to NRI
expenses, learned counsels for parties are ad idem that the said issue
would have to be answered in favour of the respondent /assessee in
light of the order passed by us in Director of Income Tax vs. ANZ
Grindlays Bank2 and where we had while dealing with this question
held as follows:-
“3. Insofar, as the aspect of expenses incurred in garnering FCNR
deposits is concerned, we note that the Tribunal has while dealing
with this aspect held as follows: –
7.2 During the hearing the Ld. CIT (DR) stated that the CIT
(Appeals) had erred in holding that the expenses incurred at
places like Singapore, Hong-Kong etc could not be treated as
a part of head office expenses and that the same were to be
allowed after obtaining the exact details from assessee
despite the fact that such expenses were not even debited in
the accounts of Indian Branch. In any case the AO had
separately allowed a deduction at 5% under Sec. 44C on
account of Head Office expenses and therefore no separate
deduction was allowable for expenses incurred outside India.
7.3 The assessee’s counsel explained that the Indian branches
of the assessee bank had opened off-shore NRI counters
outside India to obtain foreign currency deposits/funds from
Non-Resident Indians (NRIs). The country was passing
through a balance of payments crises and urgently needed
foreign exchange into the country the RBI had issued
circulars giving foreign currency deposits of NRI‟s a
favourable rate of interest as against LIBOR rates of interest.
Such expenses 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
2
ITA 563/2007 decided on 19 September 2024
ITA 388/2019 Page 2 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
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. Special expenses for soliciting foreign currency
deposits from NRI customers were not in the nature of
“executive and administrative” expenses as contemplated
under sec.44C of the Income Tax Act, 1961. It was further
submitted that even if these expenses were treated as head
office expenses, they were still fully allowable. The courts of
law have held that no part of head office expenses which
were exclusively India – centric were disallowable in law.
For this Reliance was placed on the judgement of the
Calcutta High Court in Rupenjuli Tea Company v. CIT [186
ITR 301] and Mumbai High Court in the case of CIT vs Abu
Dhabi Commercial bank reported in 262 ITR 55 where the
court have categorically held that ‘head office’ expenses
which are incurred exclusively and ONLY for the Indian
business were fully deductible for determining the Indian
business profits. No parts of such expenses were
disallowable. Reliance was also placed on the decision of the
Special Bench of the ITAT in the case of Inspecting
Assistant Commissioner vs. Goodricke Group Ltd. reported
in 12 ITD 1 (Calcutta). It was further submitted that the
learned AO had relied upon the judgment of the Calcutta
High Court in the case of UCO Bank Vs. CIT (200 ITR 68)
for making this disallowance. That judgement had
subsequently been reversed by the Supreme Court in 240
ITR 355(SC), Reliance was placed on Article 7 of the Indo-
Australian Double Taxation Avoidance Treaty under which
the Business Profits of Permanent Establishment (PE) in
India were to be computed. Under Article 7 of the aforesaid
Treaty the profits of a PE carrying on business in India were
to be computed as if it were a distinct and separate enterprise.
Therefore, these expenses which directly and exclusively
related to the business in India, should be rightfully allowed
as a deduction in the computation of the Indian “Business
Income”, since the profits of the Permanent Establishment
ITA 388/2019 Page 3 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
were offered for tax in India.
7.4 We have carefully considered the rival submissions: The
funds mobilized abroad were brought to India in foreign
currency account and kept in India for the Indian business of
the assessee bank. The benefits reaped by the India branch or
Permanent Establishment in India have been accounted for as
Indian income. We, therefore, see no reason as to why the
deduction of expenditure should not be allowed. 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 superannuation
fund and whether those could be said to have breached the limits
prescribed by Section 36(1)(iv) and thus not liable to be allowed as
deductions bearing in mind the provisions made in Section 40A(10).
4. The Tribunal has found that during the Assessment Year3 in
question, the respondent/assessee had made a contribution of INR
9.81 Crores and in respect of which deductions were claimed as a
3
AY
ITA 388/2019 Page 4 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
whole. The Assessing Officer4, however, disallowed that claim and
took the position that the amount in excess of the limit as specified in
Rule 87 of the Income Tax Rules, 19625 would be disallowable in
light of Section 36(1)(iv) read along with 40A(9) of the Act.
5. The Tribunal has taken the view that the issue would be liable
to be answered in favour of the assessee bearing in mind the decision
of the Supreme Court in Commissioner of Income Tax vs. Sirpur
Paper Mills6.
6. Mr. Menon, learned counsel who appears in support of the
appeal, has taken us through the relevant statutory provisions
contained in the Act as well as the Rules to submit that the limitations
as introduced by virtue of Rule 87, and which pegs the contribution at
not exceeding 27% of the salary of an employee for each year, would
clearly apply and thus the entire contribution as made by the
respondent/assessee could not have been claimed as a deductible
expense. According to Mr. Menon, this would be the position which
would obtain even on a conjoint reading of Section 36(1)(iv) along
with sub-sections (9) and (10) of Section 40A.
7. Having heard the submissions addressed on behalf of respective
sides and on going through the judgment of the Supreme Court in
Sirpur Paper Mills, we are disinclined to accept the position as
canvassed for our consideration by Mr. Menon for reasons which
follow.
8. Sirpur Paper Mills was dealing with a case where the assessee
had made a contribution of INR 2,70,911/- and the deduction in that
4
AO
5
Rules
6
(1999) 3 SCC 596
ITA 388/2019 Page 5 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
case being restricted by the Income Tax Officer to the extent of 80%
of the aggregate contribution as spread over a period of five years. The
Supreme Court while rendering judgment also had an occasion to
notice the Notification issued by the Central Board of Direct Taxes7
dated 21 October 1965 which stood extracted in para 7 of its judgment
and is reproduced hereinbelow:
“7. In exercise of the powers conferred by Section 36(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 the amount
actually paid by the employer by way of contribution
during any previous year shall be the deductible
allowance.
3. One-fifth of such deductible allowance shall be allowed
in the assessment year relating to the previous year in
which the amount was actually paid and the balance of the
deductible allowance shall be allowed in equal instalments
for each of the four immediately succeeding assessment
years.””
9. After taking into consideration, the statutory position which
7
CBDT
ITA 388/2019 Page 6 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
emerged from a reading of Section 36, the Supreme Court pertinently
observed as follows:-
“9. Section 36(1)(iv) 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
recognised provident fund or an approved superannuation fund,
subject to limits that may be prescribed for the purposes of
recognition of these funds and subject also to such conditions as
the Board might think fit to specify in cases 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 fund.
10. The contributions in the instant case were not payments for
recognition or approval and, therefore, outside the limits that could
be prescribed under clause (iv) in that behalf.
11. It is arguable that the contributions made here are annual
contributions of fixed amounts but, for the purposes of these
appeals, we will proceed on the basis that they are not and that the
Board was, therefore, entitled to make conditions that would apply.
Even so, the question is whether the conditions which were laid
down in the said notification fall outside the power of the Board in
this behalf.
12. For this purpose, the said notification must be analysed. The
first condition is that the total amount of the contribution shall not
exceed 25% of the employees’ salary and there is no dispute that
this is a condition which the Board was empowered to impose,
having regard to the provisions in this behalf in Rule 88.
13. The second condition is that only 80% 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%. 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 rewriteITA 388/2019 Page 7 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
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
contribution that could be treated as deductible was hinged to the
power of the to CBDT impose such conditions for the purposes of
recognition or approval of a provident fund or superannuation fund.
These were thus recognised by the Supreme Court to be qualificatory
conditions for the purposes of recognition as distinguishable from the
extent of contribution that may be made in a particular year.
12. This position clearly merits acceptance when we read Section
36(1)(iv) alongside Section 40A(9) and (10). Section 40A(9) too
speaks of deductions being allowed in connection with the “setting
up” or “formation of” or “as contribution to any fund” by an assessee
in terms contemplated under Section 36(1)(iv). The disqualification
which is then introduced by sub-section (10) of Section 40A too is
coupled to the limits that may be prescribed in the provisions specified
therein including Section 36(1)(iv).
13. The phraseology employed in Section 36(1)(iv) and when it
speaks of “subject to such conditions as the Board made deem fit to
specify in cases” is to be read along and in juxtaposition with the
expression “for the purpose of recognising the provident fund or
ITA 388/2019 Page 8 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
approving the superannuation fund” and which stands mirrored and
replicated in Rule 88 which again speaks of the initial contribution.
14. Insofar as Rule 87 is concerned, that clearly seems restricted in
its application to the ordinary annual contribution that may be made
by an employer to a fund and prescribes an outer limit with respect to
the employers‟ contribution insofar as that particular employee is
concerned.
15. We find that a similar view stands expressed by the Calcutta
High Court which in Principal Commissioner of Income Tax vs.
Exide Industries Ltd.8 has held as follows:-
“3. The issue involved in this appeal pertains to the disallowance
of a sum of Rs. 9,14,70,000/- being contribution to the approved
pension fund. The deduction scheme of the respondent/assessee
was rejected by the Assessing Officer and the ground that the
allowability of deduction towards contribution to superannuation
fund is governed by section 36(1)(iv) of the Act read with rules 87
and 88 of the Income-tax Rules, 1962 (‘the Rule’) which deal with
normal and annual contribution. Aggrieved by the same, the
assessee preferred appeal before the Commissioner of Income-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 Smithkline8
ITA No. 95 of 2018 decided on 22 September 2022ITA 388/2019 Page 9 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
Pharmaceuticals [IT Appeal No. 6444 (Mum.) of 2007, dated 28-
1-2011] allowed the assessee’s appeal.
4. We have carefully considered the submissions of either side and
perused the materials on record. Section 36 of the Act deals with
other deductions. Sub-section (1) of section 36 states that
deduction provided for in the clause enumerated thereunder shall
be allowed in respect of matters dealt with therein in computing the
income referred to section 28. Clause (iv) is under section 36(1)
would be relevant for our case which is quoted hereinbelow:
“Other deductions.
36. (1) The deductions provided for in the following
clauses shall be allowed in respect of the matters dealt
with therein, in computing the income referred to in
section 28-
xxxx xxxx xxxx
(iv) any sum paid by the assessee as an employer by way
of contribution towards a recognised provident fund or an
approved superannuation fund, subject to such limits as
may be prescribed for the purpose of recognising the
provident fund or approving the superannuation fund, as
the case may be; and subject to such conditions as the
Board may think fit to specify in cases 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 fund;”
5. In Part-B of the Fourth Schedule to the Income-tax Act, the
subject dealt with is approved superannuation fund. In Clause-(iii)
thereunder, the conditions for approval have been given and
Clause-(iv) deals with provisions relating to Rules. In terms of the
said power, the Board may make rules for limiting the ordinary
annual contribution and any other contribution to an approved
superannuation funds by an employee. In exercise of such power
rules have been framed which are found in Part-XIII of the
Income-tax Rules, 1962 and rules 87 and 88 thereto would be
relevant for our case.
“87. Ordinary annual contributions.–The ordinary annual
contribution by the employer to a fund in respect of any
particular employee shall not exceed [twenty-seven] per
cent of his salary for each year as reduced by the
employer’s contribution, if any, to any provident fund
(whether recognised or not) in respect of the same
employee for that year.
ITA 388/2019 Page 10 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
88. Initial contributions.–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 prescribed limit. 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. The learned Tribunal
bearing the above principle in mind and also taking note of the
decision of the co-ordinate bench of the Tribunal in Glaxo
Smithkline Pharmaceuticals case (supra) allowed the assessee’s
appeal. The revenue had challenged the order passed by the learned
tribunal in the case of Glaxo Smithkline Pharmaceuticals (supra)
before the High Court of Judicature at Bombay CIT v. Glaxo
Smithkline Pharmacenticals IT Appeal No. 2232 of 2011 which
was dismissed by judgment dated 6th March, 2013.
7. However, we are conscious of the fact that the Hon’ble Division
Bench while dismissing the appeal had made an observation that
ITA 388/2019 Page 11 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
even if the expenditure as claimed is not allowable under section
36(1)(iv) of the Act, the same is allowable under section 37 of the
Act. However, on this aspect there are other decisions of the
Hon’ble Supreme Court which have decided otherwise. Therefore,
we do not wish to trade into the said territory. 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 (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 the
deduction of Rs. 9.81 crores on account of contribution of
approved pension fund in its books of accounts. However theITA 388/2019 Page 12 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
assessee made the disallowance of the same in its computation of
income in view of the specific limits laid down under Rule 87 of
Income Tax Rule read with section 36 (1) (iv) 40A(9) of the Act.
56. However the assessee before the Ld. CIT(A) vide letter
dated29.7.1999 submitted that the deduction of Rs. 9.81 crores was
claimed before the AO during assessment proceedings. However
the AO failed to take any cognizance of the request made by the
assessee. The assessee before the Ld. CIT(A) further submitted that
the issue is covered in favour of assessee by the judgment of Apex
Court in the case of Sa soon J David and Co. Pvt. Ltd. Vs. CIT
reported in 118 ITR 261. However the Ld. CIT(A)disregarded the
contention of the assessee and confirm the order of AO by
observing as under :-
“13.4 I have considered the submissions made by the
appellant bank. It is seen that section 36(1)(!v) specifically
deals with the tax deductibility of contributions made to
approve pension funds. Section 40A(9) explicitly places an
embargo on the deductibility of any payment made over
and above the limits laid down in Rule 87 of the Income
Tax Rules. In view of the explicit statutory provisions
restricting deductibility of contributions made to approve
pension fund in excess of the limits laid down the claim of
the appellant made vide letter dated29.7.1999 is not
allowable. Hence the addition made on this count as Item
‘t’ of the addition to total income ofRs.9,81,00,000.//-is
sustained the appeals appeal is dismissed on this ground.
“
Being aggrieved by the order of Ld. CIT(A) assessee is in second
appeal before us.
57. The Id. AR for the assessee before us submitted that the
additional contribution was necessitated and driven entirely by
business necessity to make immediate pay-outs of pension to
employees who opted for the VRS Scheme due to early retirement.
As the retirement of the employees under VRS was pre-poned, the
pension fund did not have sufficient or the necessary funds to meet
the costs of all the retiring employee(s) opting for the VRS scheme.
He further stated that in order to make the payments of pension in
accordance with the duly approved VRS Scheme additional
funding was required to be made in the pension fund. It is
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
ITA 388/2019 Page 13 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
read as follows:-
“Section 36(1)(1v) 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 fund. In
exercise of the powers conferred by section 36(11)(iv) the
Central Board of Direct Taxes issued a notification dated
October 21/ 1965. The notification has set forth certain
conditions. The first condition is that the total amount of
the contribution shall not exceed 25 per cent of the
employees’ salary and there is no dispute that this is a
condition which the Board was empowered to impose,
having regard to the provision in this behalf in rule 88 of
the Income-tax Rules,1962. The second condition is that
only 80 per cent of the amount actually paid by the
employer can requirement that the amount must be
actually paid and the other is that the deduction shall only
be of 80 per cent. 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 these 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. 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
previous year in which the amount was paid. This too is no
‘condition’ but a provision super-added to the section
which does not contemplate any such distribution of the
deduction. Under the section the deduction is available in
the Assessment year relating to the previous year in which
the payment was made and it must be so granted. The
second and third conditions aforesaid are not valid.”
Thus on the above reasoning the deduction is allowable in its
ITA 388/2019 Page 14 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
entirety. It has been held by the Hon’ble Supreme Court in the case
of Indian Molasses Col (P) Ltd. Vs. CIT(1959) 37 ITR 66 (SC) that
expenditure whichis deductible for income-tax purposes is one
which is towards the liability actually existing at the time. Ld. AR
further cited the case of Hon’ble Supreme Court in the case of CIT
VS. Gemini Cashew Sales Corpon. (1967)65 ITR 643 (SC) where
the Hon’ble Supreme Court again held that:
“the present value on commercial valuation of money to
become due in future, under a definite obligation will be 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
Ld. CIT(A) rejected the claim of the assessee on the ground that
the impugned amount is in excess of the limit as specified in Rule
87 read with section 36 (l)(iv) and section40A(9) of the Act.
59.1 Now the issue before us arises so as to whether the deduction
for Rs.9.81 crores is eligible on account of payment to approve the
pension fund in the given facts and circumstances. In this regard,
we note that the principles laid down by the Hon’ble Apex Court in
the case of Goetz India Ltd. (supra) does not restrict the power of
the Tribunal to entertain the fresh claim of the assessee. Thus, we
reject the argument of the Id. DR. We further note that the
impugned issued is directly covered in favour of assessee by the
judgment of Hon’ble Apex Court in the case of CIT Vs. Sirpur
Paper Mills reported in 237 ITR 41 wherein it held as under:
“Section 36(1)(lv) states that the deductions provided in
the clauses thereof’ shall be allowed’ when computing
income under section 28. Clause (Iv) provides forITA 388/2019 Page 15 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
deduction of any sum paid by’ the assessee as an employer
by way of contribution towards a recognised provident
fund or an approved superannuation fund, subject to limits
that may be prescribed for the purposes of recognition of
these funds and subject also to such conditions as the
Board .might think fit to specify in cases 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 fund.
The contributions in the instant case were not payments
for recognition or approval and, therefore, outside the
limits that could be prescribed under clause(Iv) in that
behalf.
It was arguable that the contributions made here were
annual contributions of fixed amounts but, for the
purposes of these appeals one would proceed on the basis
that they were not and that the Board was, therefore,
entitled to’ make conditions that would apply. Even so, the
question was whether- the conditions which are laid down
in the said notification fall outside the power of the Board
in this behalf.
For ‘this purpose the said notification must be analysed.
The first condition is that the total amount, of the
contribution shall not exceed 25 per cent of the 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 relatingITA 388/2019 Page 16 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
to the previous year in which the amount was paid. This
too is no ‘condition’ but a provision super-added, to the
section which does not contemplate any such distribution
of the deduction. Under the section the deduction is
available in the assessment year relating to the previous
year in which the payment was made and it must be so
granted.
The appeal was, therefore, to be dismissed.”
Respectfully following the principles laid down by the judgment of
Hon’ble Apex Court in the case of Sirpur Paper Mills (supra) we
reverse the order of Authorities Below and allow the ground of
appeal raised by the assessee. Accordingly, AO is directed.
60. In the result, assessee’s appeal partly allowed for statistical
purpose.”
18. Accordingly and for all the aforesaid reasons, we find no
justification to interfere with the view as expressed by the Tribunal.
19. The questions as framed are answered in the negative and in
favour of the assessee. The appeal consequently fails and shall stand
dismissed.
YASHWANT VARMA, J.
HARISH VAIDYANATHAN SHANKAR, J.
JANUARY 16, 2025/V
ITA 388/2019 Page 17 of 17
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:24.01.2025
16:13:38
[ad_1]
Source link