High Court Of Punjab & Haryana
CIT vs. Punjab Financial Corporation Ltd.
Section 36(1)(iv), 37
Asst. Year 1977-78
M.M. Kumar & Rajesh Bindal, JJ.
IT Ref. No. 113 of 1990
12th March, 2007
Counsel appeared : Sanjiv Bansal, for the Revenue
RAJESH BINDAL, J. :
Following questions of law have been referred for opinion of this Court by the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short âthe Tribunal) arising out of order dt. 5th Feb., 1983 passed in ITA No. 49 of 1981, in respect of the asst. yr. 1977-78 :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the assesseeâs claim regarding interest due on sticky loans ?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that deduction under s. 36(1)(viii) of IT Act, 1961, should be allowed @ 40 per cent of the total income before making deduction under s. 36(1)(viii) itself ?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the disallowance of Rs. 29,402 representing contribution made by the assessee corporation towards the Provident Fund Act, 1925 ?”
2. As far as questions Nos. 1 and 2 are concerned, much facts are not required to be stated as learned counsel for the Revenue has fairly conceded that the issues are covered against the Revenue and in favour of the assessee vide order passed by this Court on 26th Aug., 2004 in W.T.C. No. 33 of 1985 (CIT vs. Punjab Financial Corporation Ltd.), wherein petition filed by the Revenue seeking reference of the above referred two questions was dismissed finding the same to be covered against the Revenue by the judgments of the Honâble Supreme Court in UCO Bank vs. CIT (1999) 154 CTR (SC) 88 : (1999) 237 ITR 889 (SC) and CIT vs. Andhra Pradesh State Financial Corporation (1998) 233 ITR 195 (SC), respectively.
Accordingly, both these questions are answered against the Revenue and in favour of the assessee. As far as question No. 3 is concerned, from a perusal of the order of assessment, it is revealed that the assessee had contributed a sum of Rs. 29,402 under the Provident Fund Act, 1925 and claimed deduction in respect thereof. The same was negatived by the AO for the reason that it was not permissible being not a recognised provident fund even if the State of Punjab had included the assesseeâs name in annexure/schedule to the Provident Fund Act, 1925 and the contributions have been made, the same is in violation of s. 36(1) (iv) of the IT Act, 1961 (for short, âthe Actâ). He further opined that as the deduction cannot be allowed under s. 36(1)(iv) of the Act, the same is also not admissible under s. 37 of the Act. In further appeal before the CIT(A), the assessee succeeded. The order of CIT(A) was upheld by the Tribunal. While doing so both the authorities below had relied upon the order passed by it in the case of Haryana Financial Corporation (supra). The status of that case is not readily available with the counsel for the Revenue. However, we have examined the case independently and are of the view that the opinion expressed by the Tribunal in the case is in conformity with law even though detailed discussion is not available on record.
5. Secs. 30 to 36 of the Act provide for various deductions which are available while computing income from business and profession. Sec. 37 is a general section which provides for deduction of any expenditure not included in any of the ss. 30 to 36 of the Act. The scope of s. 37 of the Act came up for consideration before the Kerala High Court in CIT vs. High Land Produce Co. Ltd. 1975 CTR (Ker) 146 : (1976) 102 ITR 803 (Ker) wherein it was held that the provisions of s. 37 of the Act cannot be given a restricted meaning. Mere fact that the claim does not fall in any of the ss. 30 to 36 will not automatically make the claim unsustainable under s. 36 of the Act as well. Sec. 37 being a general section, is for grant of deduction on certain accounts not enumerated in ss. 30 to 36 of the Act. It was further held as under : “We cannot give a meaning to the words âin the nature ofâ so as to stultify a legitimate claim in accordance with the principles of accountancy and according to well established commercial practice and which must be taken into account in ascertaining the true profits and gains of business. Unless there be some statutory provision which in clear terms or by necessary implication negatives against the adoption of such principles and practices, those principles and practices must be given their full play.”
6. The aforesaid judgment in High Land Produce Co. Ltd.âs case (supra) was upheld by the Honâble Supreme Court in CIT vs. High Land Produce Co. Ltd. (1986) 158 ITR 419 (SC). Issue again came up for consideration before Gujarat High Court in Khimji Visram & Sons (Gujarat) (P) Ltd. vs. CIT (1994) 122 CTR (Guj) 553 : (1994)209 ITR 993 (Guj) wherein while referring to the judgment in High Land Produce Co. Ltd.âs case (supra) of the Kerala High Court, the proposition was summed up as under : “Considering the aforesaid judgments and the provisions of ss. 30 to 36 and 37, it can be held that : (a) s. 37 is required to be construed liberally; (b) s. 37 is of general nature and it operates in a wide range covering all expenditures laid out or expended wholly and exclusively for the purposes of the business or profession, which expenditure is not capital in nature or personal expenses of the assessee; (c) it may take into account not only the day-to-day running expenses of a business but also the rationalisation of its administration and modernisation of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process and assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a precondition to commencing or for the carrying on of a business; it may comprehend many other acts incidental to the carrying on of the business; (d) unless there is express or implied prohibition under other provisions of Act, if the expenditure is covered by the provisions of s. 37, then the necessary deduction is required to be given;(e) the words âprofits and gainsâ in trade are to be understood in their natural and proper sense, i.e. in a sense in which it is understood by a prudent businessman. Therefore, unless the legislature intended a departure from the principle that an expenditure, laid out or expended wholly and exclusively for the purposes of the business, and which expenditure is not capital in nature or personal expenses it should not be allowed in computing the income from the business, deduction should be granted for the said expenses; (f) ss. 30 to 36 deal with specified expenses and for specific purposes. The nature of expenditure in those sections would be relatable only for the purposes mentioned therein.”
Applying above principles in the present case, it is not disputed that assessee had contributed the provident fund for its employees under the Provident Fund Act, 1925. Further, it cannot be disputed that the expense was made wholly and exclusively for the purpose of business and was neither capital in nature nor personal expense of the assessee. Sec. 36(1)(iv) of the Act does not debar specifically deduction on account of contribution made under the Provident Fund Act, 1925. It only talks about grant of deduction in respect of recognized provident fund. Keeping this in view, we do not find that any illegality has been committed by the Tribunal in rejecting the appeal of the Revenue, sustaining the deletion of disallowance of Rs. 29,402 representing contribution made by the assessee towards provident fund.
Accordingly, question No. 3 is also answered against the Revenue and in favour of the assessee. The reference is disposed of, accordingly.
[Citation : 295 ITR 510]