Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that a sum of Rs. 82,500 paid towards unexpired portion of the route permit was not a revenue expenditure ?

High Court Of Madras

CIT vs. Kattabomman Transport Corporation Ltd.

Section 2(38), 36(1)(iv), 37(1)

Asst. Year 1976-77

R. Jayasimha Babu & Mrs. A. Subbulakshmy, JJ.

Tax Case No. 779 of 1984

12th September, 1998

Counsel Appeared :

C.V. Rajan, for the Revenue : R. Meenakshisundaram, for the Assessee

JUDGMENT

R. Jayasimha Babu, J. :

There are two references before us one by the Revenue and the other at the instance of the assessee. Both the references relate to the assessments made for the year 1976-77 under the provisions of the IT Act, 1961.

2. Two questions referred at the instance of the Revenue are : “(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 9,75,485 was allowable as a deduction with reference to the Employees’ Provident Funds Act, 1952, r/w s. 2(38) of the IT Act, 1961 ? (2) Whether, on the facts and in the circumstances of the case, the provision made for contribution of Rs. 1,03,251 towards the provident fund maintained by the Government of Tamil Nadu on account of Government employees sent on deputation to the assessee-corporation is an allowable deduction in computing its income ?”

We shall consider the questions referred to us at the instance of the Revenue before we proceed to consider the questions referred to us at the instance of the assessee.

The first question relates to the deductibility of the amount paid as contribution to the provident fund maintained by the assessee which admittedly has not been recognised by the CIT, as the recognition of the fund either under the Act or under the Employees’ Provident Funds Act is a precondition for allowing any contribution to the provident fund as a deduction in view of s. 2(38) of the Act and s. 36 of the Act. Sec. 2(38) of the Act defines “recognised provident fund” as meaning a provident fund which has been and continues to be recognised by the Chief CIT or CIT in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952 (Act 19 of 1952). Sec. 36(1)(iv) permits the deduction or contribution made only to a recognised provident fund or an approved superannuation fund. Under s. 2(38) of the Act, it is only a scheme framed under the Employees’ Provident Funds Act which is deemed to be an approved provident fund for the purpose of the IT Act even though such a fund has not received the express approval of the CIT.

The assessee herein did not claim that fund to which contribution has been made was one set up under the scheme of the Employees’ Provident Funds Act. On the other hand, it sought exemption from the provisions of that Act for the scheme framed by it on the ground that the benefits available to the employees under that scheme were no less than those available under the provisions of the Employees’ Provident Funds Act. The order granting exemption from the provisions of the Act, cannot be treated as an order recognising the scheme as one framed under the Act. The very object of exemption granted under s. 17 of the Employees’ Provident Funds Act is to render the scheme immune from the application of the provisions of the Employees’ Provident Funds Act, subject to such conditions as may be prescribed while granting such exemption.

The scheme referred to in, s. 2(38) of the IT Act is a scheme either framed under the Employees’ Provident Funds Act, or a scheme approved by the CIT. The assessee’s claim does not answer either of these requirements for this assessment year. A scheme which has been exempted from the provisions of the Provident Funds Act does not become a scheme framed under that Act. The words ‘under the Act’ clearly imply and require that the scheme is one which is subject to the Act. The scheme to which an Act is rendered inapplicable by virtue of exemption is not a scheme framed under the Act.

Our answer to the first question, therefore, is in favour of the Revenue and against the assessee. So far as the second question is concerned, that question has to be answered in favour of the assessee. The amount paid by the assessee to the Government in order to enable the Government to credit the amount so paid to the provident fund account of the Government employees who were at that point of time working in the corporation, is part of the amount payable by the corporation to the Government for availing of the services of Government employees. The fact that the Government, after receipt of the amounts from the corporation, chooses to credit that amount to the provident fund account of the concerned employee of the Government, does not render the payment paid by the corporation a contribution by the corporation to the provident fund maintained by the Government for the benefit of its employees. The amount so paid to the Government is not in any way affected by s. 36 of the Act. The payment so made is deductible under s. 37 of the Act, being part of the business expenditure of the assessee. This question is, therefore, answered in favour of the assessee and against the Revenue.

The questions referred to us at the instance of the assessee are :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that a sum of Rs. 82,500 paid towards unexpired portion of the route permit was not a revenue expenditure ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the payment of Rs. 3,50,000 to the Chief Minister’s Drought Relief Fund was not an allowable deduction ?”

The first of these questions is covered against the assessee by a judgment of this Court in the case of Anna Transport Corpn. Ltd. vs. CIT (1995) 215 ITR 800 (Mad) wherein, it was held that the amount paid towards unexpired portion of the route permit is not a revenue expenditure. Following that judgment and for the reasons stated therein, we answer this question against the assessee and in favour of the Revenue.

The second question referred to us at the instance of the assessee is required to be answered in favour of the assessee in the light of the decision rendered by this Court in the case of CIT vs. Cheran Transport Corpn. Ltd. (1996) 134 CTR (Mad) 466 : (1996) 219 ITR 203 (Mad), wherein a similar donation was held to be an allowable deduction. Following the judgment and for the reasons stated therein, we answer the second question in favour of the assessee and against the Revenue.

[Citation : 268 ITR 507]

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