Commissioner
of Income Tax Vs. Sirpur Paper Mills [1999] INSC 79 (18 March 1999)
S.P.Bharucha,
R C Lahoti Bharucha, J.
In
these appeals the question that we are concerned with reads thus :
"Whether
on the facts and in the circumstances of the case, the Appellate Tribunal was
justified in confirming the order of the Commissioner of Income-tax (Appeals)
that the entire initial contribution made to the superannuation fund is
allowable deduction?" The High Court declined to call for its reference
and the Revenue is in appeal. The High Court relied upon its earlier judgment
in the case of Hyderabad Asbestos Cement Products Ltd., 172 ITR 762. The
Revenue had filed a Special Leave Petition against this judgment but it was
dismissed on the ground of undue delay.
The
facts of these appeals are similar. The facts now set out are of Civil Appeal
No.2398 of 1994.
The assessee
had in the relevant Assessment Year (A.Y. 1981-82) made a contribution to an
approved superannuation fund. For the current year the amount contributed was
Rs.2,70,911/- and for the past five years it was an aggregated amount of
Rs.2,14,785/-, calculated on the basis of 25% of the employees' dues on account
of past service.
The
Income Tax Officer allowed the deduction only to the extent of 80% of the
aggregate contribution and spread it out over a period of five years. For so
doing, he relied upon a notification dated 21.10.1965 issued by the Central
Board of Direct Taxes. The assessee appealed and the Commissioner of Income-Tax
(Appeals) allowed the deduction in full. The order of the C.I.T. (Appeals) was
upheld by the Income Tax Appellate Tribunal. The application of the Revenue to
refer the question aforestated to the High Court for consideration was rejected
both by the Tribunal, under Section 256(1), and by the High Court, under
Section 256(2).
The
High Court, as aforesated, followed its decision in Hyderabad Asbestos Cement
Products Limited.
Having
regard to the fact that the Special Leave Petition filed by the Revenue against
the judgment in Hyderabad Asbestos Cement Products Ltd. was dismissed on a
technical ground, we have heard these appeals on their merits.
Section
36(1)(iv) of the Income Tax Act deals with deductions on account of
contributions to recognised provident funds and approved superannuation funds.
Section 36(1)(iv) reads thus : "Section 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.........
(iv)
any sum paid by the assessee as a 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." Rules 87 & 88 of the Income Tax Rules. 1962
are relevant. They read thus: "87. Ordinary annual contributions - The
ordinary annual contribution by the employer to a fund in respect of any
particular employee shall not exceed twenty-five 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.
88.
Initial contributions - Subject to any condition which the Board may think fit
to specify under clause (iv) of sub- section (I) 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 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." In exercise of the
powers conferred by Section 36(1)(iv), the Board issued the 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." The question,
therefore, that we are concerned with is whether the said notification goes
beyond the powers conferred on the Board under Section 36(1)(iv), as was held
by the High Court in the case of Hyderabad Asbestos Cement Products Ltd. and
reaffirmed in the orders under appeal.
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.
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 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.
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.
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 rewrite the
Section. As to the second 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".
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 previous year in
which the payment was made and it must be so granted.
We
think, in the circumstances, that the view taken by the Andhra Pradesh High
Court in the case of Hyderabad Asbestos Cement Products Ltd. is substantially
correct. We use the qualifying word `substantially' because it has not been
necessary for us in these proceedings to go into the correctness of its view
that the Board could not have required actual payment of the contribution.
The
appeals are dismissed. No order as to costs.
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