Commissioner Of Income Tax, Jabalpur …Appellant/Revenue v. M.p. Electricity Board, Rampur, Jabalpur …Respondent/Assessee

THE HIGH COURT OF MADHYA PRADESH: JABALPUR(Division Bench) MAIT No. 49/2007 Commissioner of Income Tax, Jabalpur …Appellant/Revenue Versus M.P. Electricity Board, Rampur, Jabalpur …Respondent/Assessee ====================================================== Coram: Hon’ble Shri Justice Ajay Kumar Mittal, Chief JusticeHon’ble Shri Justice Vijay Kumar Shukla, Judge ====================================================== Appearance: Shri Sanjay Lal, Advocate for the Appellant/Revenue. Shri A.P. Shrivastava, Advocate for the Respondent/Assessee. ====================================================== JUDGMENT (Oral)(21.01.2020) Per: Ajay Kumar Mittal, Chief Justice: The Revenue has filed the present appeal under Section 260A of theIncome Tax Act, 1961 (for short “the Act”) against the order dated22.09.2006 passed by the Income Tax Appellate Tribunal, Jabalpur (forbrevity “the Tribunal”) in I.T.A.No.69/Jab/2005. The assessment yearinvolved is 1994-95. 2.This appeal was admitted on 09.03.2007 for determination of thefollowing substantial questions of law:- “(i)Whether assessee is entitled for deduction of Rs.1.50 Croreson account of contribution to National H.V..D.C. Projectunder section 37(1) of the Income Tax Act and CIT(A) wasjustified in allowing the deduction?on account of contribution to National H.V..D.C. Projectunder section 37(1) of the Income Tax Act and CIT(A) wasjustified in allowing the deduction? (ii)Whether ITAT was justified in upholding the order ofCIT(A) in allowing the deletion of addition ofRs.24,25,05,585/- of Provident Fund which was not paid ondue date under section 36(1)(va)?CIT(A) in allowing the deletion of addition ofRs.24,25,05,585/- of Provident Fund which was not paid ondue date under section 36(1)(va)? 3.The facts of the case as borne out from the memo of appeal filed bythe Revenue are that the respondent-assessee is a Company deriving itsincome from generation and distribution of electricity. The assessee filedreturn of income for the assessment year 1994-95 on 30.11.1994 declaringloss of Rs.26,43,49,539/- and thereafter furnished revised return on26.03.1996 declaring loss of Rs.2,96,37,62,026/-. The assessee had claimedexpenditure amounting to Rs.1.50 Crore paid towards contribution toNational HVDC Project, New Delhi. The Assessing Officer denied the saidexpenditure and made addition of Rs.1.50 Crore. The Assessing Officer alsodisallowed the claim of Rs.24,25,05,585/- made by the assessee as deductionon account of provident fund. The assessment order dated 31.3.1997(Annexure A-1) passed under Section 143(3) of the Act was assailed by therespondent-assessee before the Commissioner of Income-Tax (Appeals-I),Jabalpur [hereinafter called as “the CIT(A)]. The CIT(A) vide order05.01.2005 (Annexure A-2) deleted both the additions made by theAssessing Officer and allowed the appeal to that extent. Against the order ofthe CIT(A), the Revenue went in appeal before learned Tribunal, which wasdismissed vide impugned order dated 22.09.2006 (Annexure A-3). Hence,the present appeal. 4.Learned counsel for the Revenue submitted that the contribution toNational HVDC Project would not fall within the ambit of Section 37(1) ofthe Act as it was capital in nature and not incurred in connection with day to 4.Learned counsel for the Revenue submitted that the contribution toNational HVDC Project would not fall within the ambit of Section 37(1) ofthe Act as it was capital in nature and not incurred in connection with day to day running of the business and therefore, the CIT(A) and the learnedTribunal have committed an error in deleting the addition of Rs.1.50 Croreon account of contribution to the said fund. It was then submitted that furtherdeletion of addition of an amount of Rs.24,25,05,585/- accepted by theCIT(A) and the Tribunal is per se illegal inasmuch as the said amount wascollected by the assessee towards contribution to the provident fund. As theassessee was covered under the Employees Provident Fund Act, 1952 but theassessee did not deposit the same with the P.F. Trust within the due date asprovided under Section 36(1)(va) of the Act, therefore, the said deductionwas not admissible. For these reasons only the Assessing Officer had deniedthe deductions claimed by the assessee and rightly so but the learnedAuthorities below without any cogent reasons deleted the said additions.Hence, it was prayed that the appeal be allowed and the order of theAssessing Officer be restored. 5.On the other hand, learned counsel for the assessee argued in supportof the impugned order. It was urged that the claim of deduction on accountof payment towards contribution to National HVDC Project, New Delhi wasmade on the ground that it was paid to an organization approved by theGovernment of India vide order of releasing of funds to the assessee. It wasargued that under such circumstances, the expenditure was revenue in natureand had been rightly allowed by the CIT(A) and the Tribunal. It was furthercontended that the provident fund subscription was also rightly allowed asthe assessee-Department has its own provident fund rules and regulationsunder which it is deposited with the PF Trust and since there is no specificdate of payment but an arrangement is made that payments are maderegularly on ad hoc basis and the amount remaining unpaid, if any, is treated as invested with the assessee and carries interest as per rules. He invited ourattention to Clause 11 of the PF Regulations, which have been taken note ofby the learned Tribunal in ITA No.79 to 81/Jab/2013 (Asst. Commissioner ofIncome Tax 2(1) Jabalpur v. M.P. Electricity Board) while dismissing theappeal of the Revenue by order dated 06.07.2015 in identical facts andcircumstances, which reads as under:- “All money contributed to the fund by the Board or by a subscriber oraccruing by way of interest or otherwise to such fund shall remaininvested with the Board or in such securities as the Trustees may fromtime to time decide. If the amount is left with and merged in the fund ofthe Board, the Board shall credit the fund with interest on such amountcomputed on monthly balance once in a year at same rate as they pay tothe Govt. or their loans or 4 p.c. whichever is higher.” accruing by way of interest or otherwise to such fund shall remaininvested with the Board or in such securities as the Trustees may fromtime to time decide. If the amount is left with and merged in the fund ofthe Board, the Board shall credit the fund with interest on such amountcomputed on monthly balance once in a year at same rate as they pay tothe Govt. or their loans or 4 p.c. whichever is higher.” Learned counsel also placed on record an order dated 06.02.2017passed by a Division Bench of this Court in ITA No.1/2016 (PrincipalCommissioner, Income Tax v. M.P.E.B.) decided on 06.02.2017 whereinthe appeal of the Revenue against the aforesaid order dated 06.07.2015 wasalso dismissed. The Division Bench answered similar question raised by theRevenue, against them on the basis of the order dated 30.12.2010 passed bythe Assessing Officer accepting the same principle in respect of assessmentyear 2003-04. Learned counsel also placed on record an order dated 06.02.2017passed by a Division Bench of this Court in ITA No.1/2016 (PrincipalCommissioner, Income Tax v. M.P.E.B.) decided on 06.02.2017 whereinthe appeal of the Revenue against the aforesaid order dated 06.07.2015 wasalso dismissed. The Division Bench answered similar question raised by theRevenue, against them on the basis of the order dated 30.12.2010 passed bythe Assessing Officer accepting the same principle in respect of assessmentyear 2003-04. 6.We have heard learned counsel for the parties and perused theimpugned order passed by both the appellate authorities, the AssessingOfficer as well as perused the record of ITA No.1/2016 (supra). 7.The Assessing Officer disallowed the deduction claimed by theassessee on account of contribution to National HVDC Project on theground that the same was not directly connected with the business asenvisaged under Section 37(1) of the Act but was by way of donation and/or of capital nature. Section 37(1) of the Act permits deduction of anyexpenditure (not being expenditure of the nature described in sections 30 to36 and not being in the nature of capital expenditure or personal expenses ofthe assessee) laid out or expended wholly and exclusively for the purposesof the business or profession in computing the income chargeable under thehead “profits and gains of business or profession”. On the basis of theinternal note submitted by the assessee, the Assessing Officer having notedin the order that the said project was evolved to develop indigenoustechnology in the country and various departments of Government of Indiahad extended grant-in-aid to the said project and so as the assesseedepartment and the Chairman, APSEB were committed to contribute Rs.15Crore each, we find that there was material before the Assessing Officer toadjudge the admissibility of the said deduction in favour of the assesseeparticularly when the said step taken by the assessee was in accordance withSection 24 of the Electricity (Supply) Act, 1948 (in short “the ElectricityAct”), which was applicable to assessee. Section 24 of the said Act enabledthe Electricity Board to subscribe to associations constituted for the purposeconducive to development of electricity and promotion of common interestof persons engaged in generation, distribution and supply of electricity. Theprovision was also considered by the Assessing Officer but without dealingwith the same, he held the said subscription to be of capital nature and/or byway of donation. In our considered view, the expenses/grant-in-aid was inconformity with Section 24 of the Electricity Act, as stated above whichrequired the assessee to subscribe to the associations constituted for thepurpose conducive to development of electricity. Therefore, the expenditureof Rs.1.5 Crore in question was to be allowed under Section 37(1) of the Act as the same was incurred in ordinary course of the business of the assesseeand as a part of obligation to its consumers to develop electricity. Further,the contribution was made as per the order of the Government of India and itwas wholly, necessarily and exclusively for the purpose of business. It wasnot a voluntary contribution/donation but was given on specific directions ofthe Government of India. In this view of the matter, we do not find any errorin the finding recorded by the learned Tribunal in this regard. The relevantextract of the order passed by the learned Tribunal reads as under:- “5.3……….. In the absence of any contrary material brought on recordby the revenue against the finding of the Ld. CIT(A) and keeping in viewthat the above amount was paid to an organization approved byGovernment of India vide order of releasing of funds appearing at pages 1-3 of the assessee’s paper book, we are inclined to uphold the finding of theLd. CIT(A) in deleting the addition of Rs.1.50 Crore and accordingly, theground taken by the revenue is rejected.” “5.3……….. In the absence of any contrary material brought on recordby the revenue against the finding of the Ld. CIT(A) and keeping in viewthat the above amount was paid to an organization approved byGovernment of India vide order of releasing of funds appearing at pages 1-3 of the assessee’s paper book, we are inclined to uphold the finding of theLd. CIT(A) in deleting the addition of Rs.1.50 Crore and accordingly, theground taken by the revenue is rejected.” 8.Before adverting to the second question with regard to allowing thedeletion of addition of Rs.24,25,05,585/- of provident fund which was not paid on due date under Section 36(1)(va) of the Act, it would be apposite torefer to the relevant statutory provision which reads, thus:- “Other deductions 36. (1) The deductions provided for in the following clauses shall beallowed in respect of the matters dealt with therein, in computing theincome referred to in section 28- *** ****** (va)any sum received by the assessee from any of his employees towhich the provisions of sub-clause (x) of clause (24) of section 2 apply, ifsuch sum is credited by the assessee to the employee’s account in therelevant fund or funds on or before the due date. Explanation. - For the purposes of this clause, “due date” means the dateby which the assessee is required as an employer to credit an employee’scontribution to the employee’s account in the relevant fund under any Act,rule, order or notification issued thereunder or under any standing order,award, contract of service or otherwise;” s/ 9.There is no doubt with regard to the mandate of the aforesaidprovision. However, it is seen that the assessee had got exemption fromdepositing the money with the Provident Fund Commissioner and instead,was allowed to deposit the same with the P.F. Trust and as per Regulation 11of the PF Regulations which are applicable to the respondent, there is nospecific date for deposit of the provident fund by the Board. In M.P.E.B.’scase(supra), which has been relied upon by learned counsel for theassessee, similar question raised by the Revenue was answered against themon the basis of order dated 30.12.2010 passed by the Assessing Officeraccepting the same principle in respect of assessment year 2003-2004. Thus,there is nothing to take any different view in the present case. 10.In view of the foregoing reasons in addition to the findings recordedby the learned Tribunal coupled with the view taken by the Division Benchof this Court in M.P.E.B.’s case (supra), we do not find any case is madeout in favour of the Revenue. Learned counsel for the appellant failed topoint out any illegality or perversity in the impugned order warrantinginterference by this court in exercise of jurisdiction under Section 260-A ofthe Act. Consequently, the present appeal fails and is hereby dismissed. (AJAY KUMAR MITTAL) (VIJAY KUMAR SHUKLA) JUDGE CHIEF JUSTICE