Madras High Court
The Commissioner Of Income Tax vs Tamil Nadu Maritime Board on 23 August, 2021
TCA.No.447 of 2016
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 23.08.2021
CORAM :
The Honourable Mr.Justice T.S.SIVAGNANAM
and
The Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP
Tax Case Appeal No.447 of 2016
The Commissioner of Income Tax,
Chennai. ...Appellant
Vs
Tamil Nadu Maritime Board,
No.171, South Kesavaperumalpuram,
Off. Greenways Road, Raja Annamalaipuram,
Chennai – 600 028.
Pan: AAATT9514E ...Respondent
APPEAL under Section 260A of the Income Tax Act, 1961 against the
order dated 21.08.2015 made in ITA.No.862/Mds/2015 on the file of the
Income Tax Appellate Tribunal, 'B' Bench, Chennai for the assessment year
2010-2011.
For Appellant : Mr.T.Ravikumar
Senior Standing Counsel
For Respondent : M/s.N.V.Lakshmi
JUDGMENT
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TCA.No.447 of 2016
(Delivered by T.S.Sivagnanam,J)
This appeal by the revenue is directed against the order dated
21.08.2015 passed by the Income Tax Appellate Tribunal [hereinafter
referred to as "the Tribunal], 'B' Bench, Chennai in I.T.A.No.862/Mds/2015
for the assessment year 2010-2011.
2.The appeal was admitted on 20.07.2016 to decide the following
substantial questions of law:
“1.Whether on the facts and in the circumstances
of the case, the Income Tax Appellate Tribunal was right
in holding that the contribution made towards
superannuation fund has to be treated as business
expenditure allowable under Section 37 of the Income
Tax Act?
2.Is not the finding of the Tribunal bad by
directing the AO to allow expenditure under Section 37
when the assessee failed to obtain necessary approval
from the competent authority viz., Principal
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TCA.No.447 of 2016
Commissioner of Income Tax for the year under
consideration and the deduction falls squarely within the
ambit of Section 36(1)(iv) r/w. Section 40A(9)?”
3.We have heard Mr.T.Ravikumar, learned Senior Standing Counsel
appearing for the appellant/revenue and M/s.N.V.Lakshmi, learned counsel
appearing for the respondent/assessee.
4.It is not disputed before us that identical substantial questions of
law were decided in the assessee's own case in T.C.A.Nos.287, 288, 296 and
298 of 2020 dated 08.10.2020. The operative portion of the judgment reads
as follows:
“3.We need not labour much to go into the facts of
the case as similar question has been decided by the
Division Bench of this Court on identical facts in the case
of Commissioner of Income Tax v. Kattabomman Transport
Corporation Limited [(268 ITR 507 Mad)].
4. In fact, the Tribunal had decided the above issue
in favour of the assessee by referring to the assessee's own
case in I.T.A.No.862/Mds/2015 for the Assessment Year
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TCA.No.447 of 2016
2010-11, which was decided in favour of the assessee by
the Tribunal, following the decision in the case of
Kattabomman Transport Corporation Limited (cited
supra). The operative portion of the said judgment reads
as follows:
“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 Income-tax 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 Appellate 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, read with section 2(38) of the Income-tax 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 asses see-corporation
is an allowable deduction in computing its income ?"
3. We shall consider the questions referred to us at
the instance of the revenue before we proceed to consider
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TCA.No.447 of 2016
the questions referred to us at the instance of the assessee.
4.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 Commissioner of Income-tax, as the
recognition of the fund either under the Act or under the
Employees' Provident Funds Act is a pre-condition for
allowing any contribution to the provident fund as a
deduction in view of section 2(38) of the Act and section 36
of the Act.
5.Section 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
Commissioner or Commissioner 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). Section 36(1)(iv) permits the deduction
or contribution made only to a recognised provident fund
or an approved superannuation fund. Under section 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 Income-tax Act even
though such a fund has not received the express approval
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TCA.No.447 of 2016
of the Commissioner of Income-tax.
6.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
not 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
section 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.
7.The scheme referred to in section 2(38) of the
Income-tax Act is a scheme either framed under the
Employees' Provident Funds Act, or a scheme approved by
the Commissioner of Income-tax. 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
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TCA.No.447 of 2016
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.
8.Our answer to the first question therefore is in
favour of the revenue and against the assessee.
9.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 section 36 of the
Act. The payment so made is deductible under section 37 of
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TCA.No.447 of 2016
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.
10.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 Appellate 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. v. CIT[1995] 215 ITR
800 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
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TCA.No.447 of 2016
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 v. Cheran
Transport Corpn. Ltd. [1996] 219 ITR 203, wherein a
similar donation was held to be an allowable
deduction. Following that judgment and for the
reasons stated therein, we answer the second question
in favour of the assessee and against the revenue.”
5.The learned senior standing counsel appearing for the revenue does
not dispute the fact that the above decision had answered the substantial
questions of law framed in this appeal in favour of the assessee in the
assessee's own case for the assessment year 2007-2008, 2009-2010 and
2011-2012 and the year under consideration is AY 2010-2011. However,
the endeavour of the learned senior standing counsel for the revenue is to
place before this Court certain decisions which were not brought to the
notice of this Court earlier and if those decisions are considered, the Court
may take a different view than what was taken in the judgment dated
08.10.2020.
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TCA.No.447 of 2016
6.The first of such decisions referred to by Mr.T.Ravikumar, learned
senior standing counsel is in the case of Aspinwall & Co. Ltd. vs. Deputy
Commissioner of Income Tax [(2007) 295 ITR 0553], wherein it was held
that after the insertion of sub-section (9) in Section 40A, no deduction is to
be allowed in respect of any sum paid by the assessee as an employer
towards contribution to a Provident fund except where such amount is paid
for the purpose of and to the extent provided by or under section 36(1)(iv) of
the Act. Further it has been held that in view of the provisions of Section
40A(9), no deduction could be allowed in respect of any sum paid towards
contribution to a provident fun by taking recourse to Section 37 of the Act.
7.The learned senior standing counsel referred to the decision in
Commissioner of Income Tax vs. N.Radha Bai (Binod Cashew
Corporation) [(1989) 180 ITR 0429], wherein it was held that in order to
claim deduction for gratuity payment, the assessee should fulfill the
conditions laid down in section 40A of the Act. Reliance was placed on the
decision of the Delhi High Court in the case of Sony India (P) Ltd. vs.
Commissioner of Income Tax [(2006) 285 ITR 0213], wherein it is held
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that contribution made by an assessee to gratuity funds and superannuation
funds which were not approved during the year under consideration did not
qualify for deduction under Section 36 of the Act; deductions being claimed
by the assessee are admittedly of the nature described in Section 36(1)(iv)
and (v) and therefore the same cannot be allowed under section 37 of the
Act. To the same effect, reliance was placed on the decision of the High
Court of Delhi in the case of Jay Metal Industrial Private Ltd. vs.
Commissioner of Income Tax [(2017) 396 ITR 0194 (Delhi)]. After
placing reliance on these decisions, the learned senior standing counsel
referred to the observations made by the Assessing Officer as well as the
Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT(A)]
and submitted that the Tribunal ought not to have interfered with the said
finding.
8.M/s.N.V.Lakshmi, learned counsel for the respondent submitted
that identical questions of law have already been answered in the assessee's
own case for the earlier assessment year and subsequent assessment year in
favour of the assessee and the revenue cannot pray for a different relief in
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the present appeal as the substantial questions of law are covered by the
earlier decision which has attained finality. Further, the learned counsel
submitted that what was argued before this Court was raised before the
Tribunal by way of a miscellaneous application in M.P.No.226/Mds/2015
which was dismissed by order dated 25.02.2016 and the appellant is not on
appeal against the said order which has attained finality and the revenue
should not be permitted to canvass the points now sought to be urged before
this Court for the first time and not when the earlier appeals were heard.
9.After elaborately hearing the learned counsels for the parties, we are
of the view that the decision in the assessee's own case in T.C.A.Nos.287,
288, 296 and 298 of 2020 dated 08.10.2020 will hold good and the order
passed by the Tribunal is liable to be confirmed. We support such
conclusion with the following reasons.
10.Firstly, as rightly pointed out by the learned counsel for the
respondent/assessee, identical issue was canvassed before the Tribunal by
way of a miscellaneous petition which was considered by the Tribunal and
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the Tribunal examined the factual background as to why the assessee Board
had to remit these monies into a separate fund which was admittedly created
for the welfare of the employees. The moot question would who are those
employees who may be benefited. Those employees were initially employed
in the Port Department and the State Government gave an option to those
employees to work under the respondent/assessee/Board and it was made
clear that the employees who opted to work under the assessee/Board to
have the same tenure, remuneration, rights and privilege as to pension and
gratuity. Therefore, these set of employees who admittedly is a diminishing
group, their service conditions could not be altered because as per the option
given by the State Government if exercised by the concerned employee of the
erstwhile Port Department, none of their service conditions which was
prevailing when they were working in the Port Department could be altered.
Admittedly, the absorption based on the option exercised by those
employees took place in the year 1997 and remittances have been made to
the fund ever since. The present attempt of the revenue to deny the
deduction was for the first time during the assessment year 2007-2008. It is
not clear as to what prompted the revenue to do so. In any event, the
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assessee has got relief from the Tribunal for the assessment years 2007-
2008, 2009-2010 and 211-2012 which orders were confirmed by this Court
in T.C.A.Nos.287, 288, 296 and 298 of 2020 dated 08.10.2020. It was
never the assessee's case that the funds to which they have remitted money is
an approved fund.
11.In contradiction with the cases which were relied on by the revenue
where two provisions were pitted against each other, namely, Section
36(1)(iv) and Section 40A(9) of the Act. The question was when deduction
was impermissible under Section 36(1)(iv) r/w. Section 40A(9) of the Act,
whether the assessee can claim deduction under a general provision, namely,
Section 37 of the Act. This question was rightly answered in favour of the
revenue and against the assessees in all the four decisions referred above.
However, in the instant case, the assessee never claimed any benefit under
Section 36 of the Act nor was its claim that the remittance is towards a fund
which was approved by the Department. Admittedly, approval was granted
on 19.03.2014 with effect from 02.08.2013 by the respondent Department.
Therefore, the period in dispute is hardly five assessment years of which for
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three assessment years, the Court has decided the matter in favour of the
assessee and the fourth year is the year under consideration in this appeal.
Therefore, the Tribunal took note of the facts and as to under what
circumstances remittance had to be made and when the respondent/assessee
had no option except to accept those employees who had exercised option
and joined the services of the Board to be entitled to all service benefits as if
they were employees of the Port Department of the State Government.
Hence, we are of the view that the case on hand has to be dealt with entirely
on a different yardstick, more particularly, on the factual position which we
have elaborated above.
12.At this juncture, we may refer to the decision of the Hon'ble
Supreme Court in the case of Commissioner of Income Tax vs. Textool
Co. Ltd., [(2013) 216 Taxman 327(SC)], wherein the Hon'ble Supreme
Court explained the real intention of Section 36(1)(v) of the Act. It was held
that from a bare reading of the said provision, the real intention behind the
provision is that the employer should not have any control over the funds of
the irrevocable Trust created exclusively for the benefit of the employees.
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Admittedly, there is no such allegation against the respondent/assessee,
alleging that this was a device adopted by the assessee as a vehicle for tax
avoidance. In fact this aspect is what weighed in the minds of the Court
while deciding the case in Aspinwall & Co. Ltd. and precisely for such
reason, the Court referred to the explanatory note attached to Section 40A(9)
of the Act. The note clearly states that the Trust which have been set up as a
discretionary Trust with absolute discretion to the trustees to utilize the trust
property in such manner as they may think fit for the benefit of the
employees without any scheme or safeguards for the proper disbursement of
funds would be used as vehicle for tax avoidance. By claiming deduction in
respect of such contribution which may even flow back to the employer in
the form of deposits or investments in shares, etc. Furthermore, the
assessee in the said case had no governmental control. Equally are the
decisions in the case of N.Radha Bai and Sony India (P) Ltd.
13.As pointed out earlier, the proposition laid down in the
aforementioned three decisions relied on by the revenue stating that if the
assessee is not entitled to claim deduction under Section 36 of th Act, he
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cannot be allowed to claim deduction under Section 37 of the Act. There
can be no quarrel on this legal proposition. Nevertheless we need to decided
the case based on facts. As explained in the case of Textool Co. Ltd., the
intention behind the provision assumes importance. There can be no
allegation that the respondent Board had adopted such procedure as a tax
avoidance measure rather it was a duty cast upon them based on the
direction issued by the Government.
14.The revenue sought to distinguish the decision in the case of
Commissioner of Income Tax vs. Kattabomman Transport Corporation
Ltd. [(2004) 268 ITR 0507] by contending that the employees therein were
under deputation, whereas the employees for whom the respondent/assessee
had effected the deposits have been absorbed. On noting the facts in the
instant case, we find that the case on hand is a better case on facts than that
of Kattabomman Transport Corporation Ltd. as absorption into the
respondent/assessee/Board is pursuant to the State Government decision
which gives option to the erstwhile employees of the Port Department to
become permanent employees of the respondent/assessee/Board subject to
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the condition that their service conditions which include gratuity remains
unaltered. Therefore, the decision in Kattabomman Transport Corporation
Ltd., would fully apply to the facts and circumstances of the case.
15.In the light of the above, we are of the view that the decision
rendered in the assessee's own case in T.C.A.Nos.287, 288, 296 and 298 of
2020 dated 08.10.2020 will hold good and consequently, the substantial
questions of law framed for consideration in this appeal have to be
answered against the revenue and accordingly answered.
16.In the result, the tax case appeal is dismissed. No costs.
(T.S.S.,J.) (S.S.K,J.)
23.08.2021
Index: Yes/No
Internet:Yes/No
Speaking Judgment/Non speaking Judgment
cse
T.S.SIVAGNANAM,J.
AND
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TCA.No.447 of 2016
SATHI KUMAR SUKUMARA KURUP,J.
cse
To
The Income Tax Appellate Tribunal,
'B' Bench, Chennai.
TCA.No.447 of 2016
23.08.2021
http://www.judis.nic.in
