I)Yashasvi Yarn Limited v. Commissioner Of Income Tax Reported In [2013] 350 Itr 208(Sc

O/TAXAP/171/2000 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 171 of 2000 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ DY. CIT....Appellant(s)Versus GUJARAT STATE CIVIL SUPPLIES CORP. LTD.....Opponent(s) ================================================================ Appearance: MR NITIN K MEHTA, ADVOCATE for the Appellant(s) No. 1 MR JP SHAH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIandHONOURABLE MR.JUSTICE K.J.THAKER Date : 18/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.Being aggrieved and dissatisfied with the impugned order dated 18.11.1999 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘A’ in ITA No. 5051/Ahd/1994 for the assessment year 1991-92, the revenue has preferred the present tax appeal. 2.This appeal was admitted by this Court on 16.10.2000 for consideration of the following substantial question of law: “(1) Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance of Rs. 14,00,000/- made under Section 40A(9) being contribution to the staff benevolent fund even though such fund was not recognised nor approved in terms of Section 2(5) and (6) of the Income Tax Act?" 3.The facts leading to the present tax appeal in a nutshell are set out as under: 3.1The assessee had created a staff benevolent fund for the benefit of the staff. The assessee had contributed Rs. 14 lakhs to meet the expenditure of the employees. The Assessing Officer disallowed the same applying provisions of section 40A(9) of the Act. On appeal before CIT(A), the CIT(A) upheld the disallowance. 3.2Being aggrieved by the order, the assessee preferred appeal before the ITAT and the Tribunal vide impugned order allowed the appeal and allowed the deduction in respect of expenses incurred by the assessee. Being aggrieved by the said order, the present appeal is filed by the revenue. 4.Mr. Nitin Mehta, learned advocate appearing for the revenue submitted that the Tribunal has erred in law and on facts in deleting the disallowance of Rs. 14 lakhs made under section 40A(9) being contribution to staff benevolent fund. He has drawn the attention of this Court to the definition of section 40A(9) and submitted that when the language of the provision is unambiguous and clear, there is no question of taking help from circulars and extraneous matters. In support of his submissions, Mr. Mehta has relied upon the following decisions: (I)Yashasvi Yarn Limited vs. Commissioner of Income Tax reported in [2013] 350 ITR 208(SC); (II)Sandur Manganese and Iron Ores ltd. vs. Commissioner of Income Tax reported in [2102] 349 ITR 386(SC); (III)Tata Iron & Steel Co. Ltd vs. Union of India and Others reported in (2001) 2 SCC 41;(IV)Brooke Bond India Ltd vs. Joint Commissioner of Income Tax and Another reported in [2011] 337 ITR 482 (Cal). (I)Yashasvi Yarn Limited vs. Commissioner of Income Tax reported in [2013] 350 ITR 208(SC); (II)Sandur Manganese and Iron Ores ltd. vs. Commissioner of Income Tax reported in [2102] 349 ITR 386(SC); (III)Tata Iron & Steel Co. Ltd vs. Union of India and Others reported in (2001) 2 SCC 41;(IV)Brooke Bond India Ltd vs. Joint Commissioner of Income Tax and Another reported in [2011] 337 ITR 482 (Cal). 5.Mr. J.P. Shah, learned advocate appearing for the assessee supported the impugned order and submitted that the same having been passed in accordance with law does not call for any interference by this Court. He submitted that the expenditure incurred by the assessee was for the benefit of the employees as the payment was towards cultural program, death assistance, educational assistance, gifts, honorarium, medical assistance, note books for the children of the employees and sports etc and therefore the said expenditure is rightly allowed to be deducted by the Tribunal. 5.1Mr. Shah has placed reliance upon the following decisions: (a) Commissioner of Income Tax vs. Bharat Petroleum Corporation Ltd reported in [2001] 252 ITR 43; (b) Commissioner of Incoem tax vs. Travancore Cochin Chemicals Ltd reported in [2000] 243 ITR 284; (c ) Gujarat Poly-Acx Electronics Ltd vs. Deputy Commissioner of Income-Tax (Assessment) reported in [1996] 222 ITR 140. 6.We have heard learned advocates for both the sides and perused the orders passed by the Tribunal. It is pertinent to note that a payment of Rs. 14 lakhs was made to the Staff Benevolent Fund. The assessee in order to meet with the requirements of the employees formed a fund for the benefit of the staff. It is borne out that the assessee maintained complete accounts of the fund and also got it audited regularly. From the records, it is borne out that the major expenditure during the year in question was as under: O/TAXAP/171/2000 JUDGMENT 7.The Assessing Officer while assessing the income of the assessee proceeded on the footing that as per section 40A(9) of the Act, any sum paid for setting up or formation of or as contribution to any fund, trust etc other than recognised Provident Fund/approved Superannuation Fund/approved gratuity fund is a non-deductable item and therefore as the staff benevolent fund does not fall in any of the said categories this expenditure was disallowed u/s 40A(9) of the Act by the Assessing Officer. 7.1The Tribunal has relied upon circular no. 307 issued by CBDT on 06.07.1904 reported in 152 ITR 10 (St.) wherein it is mentioned that expenditure actually incurred on the welfare of employees is also allowed as deduction. The Tribunal has observed that the object of the statute vide the circular was to discourage creation of bogus trust for the purpose of availing deduction only. The Tribunal has considered that the assessee contributed the amount to the staff benevolent fund which was created for the benefit of the staff and family members and therefore relying upon the circular and the decision of Madras High Court in the case of Cheran Engineering Corporation Ltd. vs. Commissioner of Income tax reported in [1999] 238 ITR 892, allowed the deduction. This is the finding of fact recorded by the Tribunal and we are in complete agreement with the reasonings adopted and findings arrived at by the Tribunal. 7.2We have gone through the decisions cited by learned advocates for both the sides. We do not find that the decisions cited by learned advocate for the revenue shall be applicable to the facts and circumstances of the present case. The Apex Court in the case of Bharat Petroleum Corporation Ltd (supra) has held as under: 7.2We have gone through the decisions cited by learned advocates for both the sides. We do not find that the decisions cited by learned advocate for the revenue shall be applicable to the facts and circumstances of the present case. The Apex Court in the case of Bharat Petroleum Corporation Ltd (supra) has held as under: “5. For the aforestated assessment year 1985-86, the Assessing Officer disallowed Rs. 2,60,283 under Section 40A(9) paid by the assessee for staff welfare activities. The assessee claimed that the entire amount was for staff welfare activity. That, the said amount was a grant for staff welfare activity and that the entire amount was for the benefit of the employees and, therefore, the assessee claimed deduction as business expenditure under Section 28. However, the Department rejected the assessee's claim on the ground that a club known as Trombay Club was incorporated by the assessee for social, cultural and recreational activities of its members who were required to pay subscription fees. Hence, the Assessing Officer as also the Commissioner of Income-tax (Appeals) came to the conclusion that the said amount constituted contribution to the club and, therefore, under Section 40A(9), the claim for deduction was disallowed. Being aggrieved, the assessee went in appeal to the Tribunal which took the view that the aforestated amount represented reimbursement of expenses incurred by a society and, therefore, it did not constitute contribution under Section 40A(9). Being aggrieved by the decision of the Tribunal, the Department has come in appeal. Findings on question No. 2 : 6.Bharat Petroleum Corporation is a Central Government undertaking. It has incorporated a club, essentially to carry on staff welfare activities. Under Clause 28, Bharat Petroleum Corporation Limited had a right to issue directives to the club which were binding on the club. At times, the members of the club, who were the employees of Bharat Petroleum Corporation, took part in tournaments held outside the club premises like Times shield in cricket. On such occasions, the assessee-Corporation used to reimburse expenses incurred by the club. This is the finding of fact recorded by the Tribunal. In the circumstances, Section 40A(9) is not applicable. No substantial question of law arises. Hence, our answer to the aforestated question No. 2 is in the negative, i.e., in favour of the assessee and against the Department.” 8.In view of the above, we confirm the finding of fact recorded by the Tribunal and therefore do not see any reason for interference in the same. Accordingly, we answer the question raised in the present appeal in favour of the assessee and against the revenue. Appeal is dismissed accordingly. (K.S.JHAVERI, J.) divya (K.J.THAKER, J)