Of Asst. Commissioner Of Income Tax, Cir. 6(3 v. Glaxo Smithklinepharmaceuticals, Mumbai, 2011 (1) Tmi 1530 – Itat Mumbai Allowed Theassessee’s Appeal

O-132 IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE ITA/95/2018 PRINCIPAL COMMISSIONER OF INCOME TAX-1, KOLKATAVSM/S. EXIDE INDUSTRIES LIMITED BEFORE :THE HON’BLE JUSTICE T.S. SIVAGNANAMA N DTHE HON’BLE JUSTICE SUPRATIM BHATTACHARYADate : 22[nd] September, 2022. Appearance:Mr. Tilak Mitra, Adv....for the appellantMr. J.P. Khaitan, Sr. Adv.Mrs. Nilanjana Banerjee Pal, Adv.…for the respondent The Court:- This appeal filed by the Revenue under Section 260A of theIncome Tax Act, 1961 (‘the Act’ for brevity) is directed against the order datedJune 15, 2016 passed by the Income Tax Appellate Tribunal, “C” Bench, Kolkata(in short the ‘Tribunal’) in M.A. No. 38/Kol/2016 arising out of I.T.A. No.1414/Kol/2007 for the Assessment Year 2004-2005. The appeal was admitted todecide the following substantial question of law:- “……………..….The legal issue that arises is since the initialcontribution is permitted to be deducted from the income and annualcontribution to a pension fund may also be deducted from the incomeof the employer, would an ad hoc or lump sum interim contribution, insuch circumstances, be also eligible for deduction. ………………” We have heard Mr. Tilak Mitra, learned standing counsel appearing forthe appellant and Mr. J.P. Khaitan, learned senior advocate assisted by Mrs.Nilanjana Banerjee Pal, learned advocate appearing for the respondents. The issue involved in this appeal pertains to the disallowance of a sumof Rs.9,14,70,000/- being contribution to the approved pension fund. Thededuction scheme of the respondent/assessee was rejected by the AssessingOfficer and the ground that the allowability of deduction towards contribution tosuperannuation fund is governed by Section 36(1)(iv) of the Act read with Rules87 and 88 of the Income Tax Rules, 1962 (‘the Rule’) which deal with normal andannual contribution. Aggrieved by the same, the assessee preferred appealbefore the Commissioner of Income Tax (Appeals) –I, Kolkata (CITA) contendingthat under Rule 87 of the said Rules normal and annual contribution by theemployer shall not exceed 27% of the salary of the employee for each year asreduced by the employer’s contribution to the provident fund in respect of thesame employee for the year. In terms of Rule 88, the limit is 25% of theemployee’s salary of each year up to 21.9.1997 and 27% of the employee’s salaryfor each year after 21.9.1997. The assessee contended that Rules 87 and 88refer to initial contribution and regular contribution and the lump sumcontribution made by the assessee is neither ordinary contribution nor initialcontribution and the limits prescribed in Rule 87 and Rule 88 shall not apply tosuch lump sum contribution. The CITA did not aggrieve with the assessee andby order dated 28.3.2007 dismissed the appeal. Aggrieved by the same theassessee had preferred appeal before the learned Tribunal. The Tribunal by theimpugned order aggrieved by the contention raised by the assessee and aftertaking note of the decision of the Co-ordinate Bench of the Tribunal in the case of Asst. Commissioner of Income Tax, Cir. 6(3) Vs. Glaxo SmithklinePharmaceuticals, Mumbai, 2011 (1) TMI 1530 – ITAT Mumbai allowed theassessee’s appeal. We have carefully considered the submissions of either side andperused the materials on record. Section 36 of the Act deals with otherdeductions. Sub-Section (1) of Section 36 states that deduction provided for inthe clause enumerated thereunder shall be allowed in respect of matters dealtwith therein in computing the income referred to Section 28. Claus-(iv) is underSection 36(1) would be relevant for our case which is quoted hereinbelow: “Other deductions. 36. (1) The deductions provided for in the following clauses shall beallowed in respect of the matters dealt with therein, in computing the incomereferred to in section 28- of Asst. Commissioner of Income Tax, Cir. 6(3) Vs. Glaxo SmithklinePharmaceuticals, Mumbai, 2011 (1) TMI 1530 – ITAT Mumbai allowed theassessee’s appeal. We have carefully considered the submissions of either side andperused the materials on record. Section 36 of the Act deals with otherdeductions. Sub-Section (1) of Section 36 states that deduction provided for inthe clause enumerated thereunder shall be allowed in respect of matters dealtwith therein in computing the income referred to Section 28. Claus-(iv) is underSection 36(1) would be relevant for our case which is quoted hereinbelow: “Other deductions. 36. (1) The deductions provided for in the following clauses shall beallowed in respect of the matters dealt with therein, in computing the incomereferred to in section 28- (iv) any sum paid by the assessee as an employer by way of contributiontowards a recognised provident fund or an approved superannuation fund,subject to such limits as may be prescribed for the purpose of recognising theprovident fund or approving the superannuation fund, as the case may be; andsubject to such conditions as the Board may think fit to specify in cases wherethe contributions are not in the nature of annual contributions of fixed amounts orannual contributions fixed on some definite basis by reference to the incomechargeable under the head “Salaries” or to the contributions or to the number ofmembers of the fund;” In Part-B of the Fourth Schedule to the Income Tax Act, the subject dealtwith is approved superannuation fund. In Clause-(iii) thereunder, the conditions for approval have been given and Clause-(iv) deals with provisionsrelating to Rules. In terms of the said power, the Board may make rules forlimiting the ordinary annual contribution and any other contribution to anapproved superannuation funds by an employee. In exercise of such powerrules have been framed which are found in Part-XIII of the Income Tax Rules,1962 and Rules 87 and 88 thereto would be relevant for our case. “Ordinary annual contributions. 87. The ordinary annual contribution by the employer to a fund in respectof any particular employee shall not exceed [twenty-seven] per cent of his salaryfor each year as reduced by the employer’s contribution, if any, to any providentfund (whether recognised or not) in respect of the same employee for that year. Initial contributions. 88. Subject to any condition which the Board may think fit to specifyunder clause (iv) of sub-Section (1) of Section 36, the amount to be allowed as adeduction on account of an initial contribution which an employer may make inrespect of the past services of an employee admitted to the benefits of a fundshall not exceed twenty-five per cent of the employee’s salary for each year [up tothe employee’s salary for each year] of his past service with the employer asreduced by the employer’s contribution, if any, to any provident fund (whetherrecognised or not) in respect of that employee for each such year.” In terms of the above rules, what is required to be seen is whetherthere is any ceiling fixed in respect of the contribution which have been made bythe respondent/assessee and whether it was towards an ordinary annualcontribution or whether it was towards an initial contribution. The factualposition is not in dispute which have been noted not only by the learnedTribunal but also by the CIT(A). In terms of the above rules, a contribution to anapproved superannuation fund is deductible as long as the quantum of thecontribution does not exceed the prescribed limit. As noticed from the rules, the In terms of the above rules, what is required to be seen is whetherthere is any ceiling fixed in respect of the contribution which have been made bythe respondent/assessee and whether it was towards an ordinary annualcontribution or whether it was towards an initial contribution. The factualposition is not in dispute which have been noted not only by the learnedTribunal but also by the CIT(A). In terms of the above rules, a contribution to anapproved superannuation fund is deductible as long as the quantum of thecontribution does not exceed the prescribed limit. As noticed from the rules, the limitations have been prescribed only for the initial contribution and ordinaryannual contribution to the funds. Thus, the consequence that would follow isthat any other contribution made other than initial contribution or an ordinaryannual contribution, would not be covered under the rules and no ceiling hasbeen fixed with regard to the amount of such contribution. This has not beendisputed by the revenue that the amount paid by the respondent/assessee inexcess of 27% of the salaries of the employees are neither towards ordinaryannual contribution nor towards initial contribution and the payment wasnecessitated due to short-fall discovered in the course of actuarial valuation ofthe funds which is in exceptional circumstances and has been made to ensurethat the superannuation funds will be able to discharge its obligation to theemployees. The learned Tribunal bearing the above principle in mind and alsotaking note of the decision of the co-ordinate bench of the Tribunal in GlaxoSmithkline Pharmaceuticals (supra) allowed the assessee’s appeal. The revenuehad challenged the order passed by the learned tribunal in the case of GlaxoSmithkline Pharmaceuticals before the High Court of Judicature at Bombay inIncome Tax Appeal No.2232 of 2011 which was dismissed by judgment dated 6[th]March, 2013. However, we are conscious of the fact that the Hon’ble Division Benchwhile dismissing the appeal had made an observation that even if theexpenditure as claimed is not allowable under Section 36(1)(iv) of the Act, thesame is allowable under Section 37 of the Act. However, on this aspect there areother decisions of the Hon’ble Supreme Court which have decided otherwise.Therefore, we do not wish to trade into the said territory. We are satisfied thatthe amount which was remitted by the respondent/assessee is neither towards an initial contribution nor towards an ordinary annual contribution and,therefore, the ceiling fixed under the rules will not apply to such a contribution.That apart, this contribution had to be made considering the peculiarcircumstances and it was a one-time payment, therefore we are of the view thatthe learned Tribunal rightly allowed the appeal filed by the assessee. That apartthe decision in the case of Glaxo Smithkline Pharmaceuticals (supra) has beenaffirmed by the High Court of Judicature at Bombay. For the above reasons, we find there are no ground to interfere withthe order passed by the learned Tribunal. Accordingly, the appeal filed by therevenue (ITA/95/2018) is dismissed and the substantial question of law isanswered against the revenue. (T.S. SIVAGNANAM, J.) (SUPRATIM BHATTACHARYA, J.) TO/ S.Chandra/S.Das/As