The Commissioner Of Income Tax, Chennai v. Tamil Nadu Maritime Board

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 23.08.2021 CORAM : The Honourable Mr.Justice T.S.SIVAGNANAMand The Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP Tax Case Appeal No.447 of 2016 The Commissioner of Income Tax,Chennai. ...AppellantVs Tamil Nadu Maritime Board,No.171, South Kesavaperumalpuram,Off. Greenways Road, Raja Annamalaipuram,Chennai – 600 028.Pan: ...Respondent APPEAL under Section 260A of the Income Tax Act, 1961 againstthe order dated 21.08.2015 made in ITA.No.862/Mds/2015 on thefile of the Income Tax Appellate Tribunal, 'B' Bench, Chennaifor the assessment year 2010-2011. Against the appellate order of the Commissioner ofIncome-Tax (Appeals)2, Chennai, dated 29.12.2014 made inITA.No.318/13-14/A-1 for the Assessment year 2010-11 against theorder of the Assistant Commissioner of Income Tax Circle III,Chenai, dated 07.03.2013 made in PAN.No. for theAssessment year 2010-11. For Appellant : Mr.T.Ravikumar Senior Standing Counsel For Respondent : M/s.N.V.Lakshmi JUDGMENT (Delivered by T.S.Sivagnanam,J) This appeal by the revenue is directed against the orderdated 21.08.2015 passed by the Income Tax Appellate Tribunal[hereinafter referred to as "the Tribunal], 'B' Bench, Chennaiin I.T.A.No.862/Mds/2015 for the assessment year 2010-2011. 2.The appeal was admitted on 20.07.2016 to decide thefollowing substantial questions of law: https://hcservices.ecourts.gov.in/hcservices/ “1.Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in holding that thecontribution made towards superannuation fund hasto be treated as business expenditure allowableunder Section 37 of the Income Tax Act? 2.Is not the finding of the Tribunal bad bydirecting the AO to allow expenditure underSection 37 when the assessee failed to obtainnecessary approval from the competent authorityviz., Principal Commissioner of Income Tax for theyear under consideration and the deduction fallssquarely within the ambit of Section 36(1)(iv)r/w. Section 40A(9)?” 3.We have heard Mr.T.Ravikumar, learned Senior StandingCounsel 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 substantialquestions of law were decided in the assessee's own case inT.C.A.Nos.287, 288, 296 and 298 of 2020 dated 08.10.2020. Theoperative portion of the judgment reads as follows: “3.We need not labour much to go into the factsof the case as similar question has been decided bythe Division Bench of this Court on identical factsin the case of Commissioner of Income Tax v.Kattabomman Transport Corporation Limited [(268 ITR507 Mad)]. 4. In fact, the Tribunal had decided the aboveissue in favour of the assessee by referring to theassessee's own case in I.T.A.No.862/Mds/2015 for theAssessment Year 2010-11, which was decided in favourof the assessee by the Tribunal, following thedecision in the case of Kattabomman TransportCorporation Limited (cited supra). The operativeportion of the said judgment reads as follows:“There are two references before us one by theRevenue and the other at the instance of theassessee. Both the references relate to theassessments made for the year 1976-77 under theprovisions of the Income-tax Act, 1961. 2. Two questions referred at the instance ofthe revenue are : "1. Whether, on the facts and in thecircumstances of the case, the Appellate Tribunalwas right in holding that the sum of Rs. 9,75,485was allowable as a deduction with reference to theEmployees' Provident Funds Act, 1952, read withsection 2(38) of the Income-tax Act, 1961 ? 2. Two questions referred at the instance ofthe revenue are : "1. Whether, on the facts and in thecircumstances of the case, the Appellate Tribunalwas right in holding that the sum of Rs. 9,75,485was allowable as a deduction with reference to theEmployees' Provident Funds Act, 1952, read withsection 2(38) of the Income-tax Act, 1961 ? 2. Whether, on the facts and in thecircumstances of the case, the provision made forcontribution of Rs. 1,03,251 towards the providentfund maintained by the Government of Tamil Nadu onaccount of Government employees sent on deputationto the asses see-corporation is an allowablededuction in computing its income ?" 3. We shall consider the questions referred tous at the instance of the revenue before we proceedto consider the questions referred to us at theinstance of the assessee. 4.The first question relates to thedeductibility of the amount paid as contribution tothe provident fund maintained by the assessee whichadmittedly has not been recognised by theCommissioner of Income-tax, as the recognition ofthe fund either under the Act or under theEmployees' Provident Funds Act is a pre-conditionfor allowing any contribution to the provident fundas a deduction in view of section 2(38) of the Actand section 36 of the Act. 5.Section 2(38) of the Act defines 'recognisedprovident fund' as meaning a provident fund whichhas been and continues to be recognised by the ChiefCommissioner or Commissioner in accordance with therules contained in Part A of the Fourth Schedule,and includes a provident fund established under ascheme framed under the Employees' Provident FundsAct, 1952 (Act 19 of 1952). Section 36(1)(iv)permits the deduction or contribution made only to arecognised provident fund or an approvedsuperannuation 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 anapproved provident fund for the purpose of theIncome-tax Act even though such a fund has notreceived the express approval of the Commissioner ofIncome-tax. 6.The assessee herein did not claim that fundto which contribution has been made was one set upunder the scheme of the Employees' Provident FundsAct. On the other hand, it sought exemption from theprovisions of that Act for the scheme framed by iton the ground that the benefits available to theemployees under that scheme were not less than thoseavailable under the provisions of the Employees'Provident Funds Act. The order granting exemptionfrom the provisions of the Act, cannot be treated asan order recognising the scheme as one framed underthe Act. The very object of exemption granted undersection 17 of the Employees' Provident Funds Act isto render the scheme immune from the application ofthe provisions of the Employees' Provident FundsAct, subject to such conditions as may be prescribedwhile granting such exemption. 7.The scheme referred to in section 2(38) ofthe Income-tax Act is a scheme either framed underthe Employees' Provident Funds Act, or a schemeapproved by the Commissioner of Income-tax. Theassessee's claim does not answer either of theserequirements for this assessment year. A schemewhich has been exempted from the provisions of theProvident Funds Act does not become a scheme framedunder that Act. The words under the Act clearlyimply and require that the scheme is one which issubject to the Act. The scheme to which an Act isrendered inapplicable by virtue of exemption is nota scheme framed under the Act. 8.Our answer to the first question therefore isin favour of the revenue and against the assessee. 7.The scheme referred to in section 2(38) ofthe Income-tax Act is a scheme either framed underthe Employees' Provident Funds Act, or a schemeapproved by the Commissioner of Income-tax. Theassessee's claim does not answer either of theserequirements for this assessment year. A schemewhich has been exempted from the provisions of theProvident Funds Act does not become a scheme framedunder that Act. The words under the Act clearlyimply and require that the scheme is one which issubject to the Act. The scheme to which an Act isrendered inapplicable by virtue of exemption is nota scheme framed under the Act. 8.Our answer to the first question therefore isin 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 theassessee. The amount paid by the assessee to theGovernment in order to enable the Government tocredit the amount so paid to the provident fundaccount of the Government employees who were at thatpoint of time working in the Corporation, is part ofthe amount payable by the Corporation to theGovernment for availing of the services ofGovernment employees. The fact that the Governmentafter receipt of the amounts from the Corporation,chooses to credit that amount to the provident fundaccount of the concerned employee of the Government,does not render the payment paid by the corporationa contribution by the Corporation to the provident fund maintained by the Government for the benefit ofits employees. The amount so paid to the Governmentis not in any way affected by section 36 of the Act.The payment so made is deductible under section 37of the Act, being part of the business expenditureof the assessee. This question is therefore answeredin favour of the assessee and against the revenue. 10.The questions referred to us at the instanceof the assessee are : "1.Whether, on the facts and in thecircumstances of the case, the Tribunal wasright in law in holding that a sum of Rs. 82,500paid towards unexpired portion of the routepermit was not a revenue expenditure ? 2.Whether, on the facts and in thecircumstances of the case, the AppellateTribunal was right in law in holding that thepayment of Rs. 3,50,000 to the Chief Minister'sDrought Relief Fund was not an allowablededuction ?" The first of these questions is coveredagainst the assessee by a judgment of this Courtin the case of Anna Transport Corpn. Ltd. v. CIT[1995] 215 ITR 800 wherein, it was held that theamount paid towards unexpired portion of theroute permit is not a revenue expenditure.Following that judgment and for the reasonsstated therein, we answer this question againstthe assessee and in favour of the revenue. The second question referred to us atthe instance of the assessee is required to beanswered in favour of the assessee in the lightof the decision rendered by this Court in thecase of CIT v. Cheran Transport Corpn. Ltd.[1996] 219 ITR 203, wherein a similar donationwas held to be an allowable deduction. Followingthat judgment and for the reasons statedtherein, we answer the second question in favourof the assessee and against the revenue.” 5.The learned senior standing counsel appearing for therevenue does not dispute the fact that the above decision hadanswered the substantial questions of law framed in this appealin favour of the assessee in the assessee's own case for theassessment year 2007-2008, 2009-2010 and 2011-2012 and the year under consideration is AY 2010-2011. However, the endeavour ofthe learned senior standing counsel for the revenue is to placebefore this Court certain decisions which were not brought tothe notice of this Court earlier and if those decisions areconsidered, the Court may take a different view than what wastaken in the judgment dated 08.10.2020. 5.The learned senior standing counsel appearing for therevenue does not dispute the fact that the above decision hadanswered the substantial questions of law framed in this appealin favour of the assessee in the assessee's own case for theassessment year 2007-2008, 2009-2010 and 2011-2012 and the year under consideration is AY 2010-2011. However, the endeavour ofthe learned senior standing counsel for the revenue is to placebefore this Court certain decisions which were not brought tothe notice of this Court earlier and if those decisions areconsidered, the Court may take a different view than what wastaken in the judgment dated 08.10.2020. 6.The first of such decisions referred to byMr.T.Ravikumar, learned senior standing counsel is in the caseof Aspinwall & Co. Ltd. vs. Deputy Commissioner of Income Tax[(2007) 295 ITR 0553], wherein it was held that after theinsertion of sub-section (9) in Section 40A, no deduction is tobe allowed in respect of any sum paid by the assessee as anemployer towards contribution to a Provident fund except wheresuch amount is paid for the purpose of and to the extentprovided by or under section 36(1)(iv) of the Act. Further ithas been held that in view of the provisions of Section 40A(9),no deduction could be allowed in respect of any sum paid towardscontribution to a provident fun by taking recourse to Section 37of the Act. 7.The learned senior standing counsel referred to thedecision in Commissioner of Income Tax vs. N.Radha Bai (BinodCashew Corporation) [(1989) 180 ITR 0429], wherein it was heldthat in order to claim deduction for gratuity payment, theassessee should fulfill the conditions laid down in section 40Aof the Act. Reliance was placed on the decision of the DelhiHigh Court in the case of Sony India (P) Ltd. vs. Commissionerof Income Tax [(2006) 285 ITR 0213], wherein it is held thatcontribution made by an assessee to gratuity funds andsuperannuation funds which were not approved during the yearunder consideration did not qualify for deduction under Section36 of the Act; deductions being claimed by the assessee areadmittedly of the nature described in Section 36(1)(iv) and (v)and therefore the same cannot be allowed under section 37 of theAct. To the same effect, reliance was placed on the decision ofthe High Court of Delhi in the case of Jay Metal IndustrialPrivate Ltd. vs. Commissioner of Income Tax [(2017) 396 ITR 0194(Delhi)]. After placing reliance on these decisions, thelearned senior standing counsel referred to the observationsmade by the Assessing Officer as well as the Commissioner ofIncome Tax (Appeals) [hereinafter referred to as CIT(A)] andsubmitted that the Tribunal ought not to have interfered withthe said finding. 8.M/s.N.V.Lakshmi, learned counsel for the respondentsubmitted that identical questions of law have already beenanswered in the assessee's own case for the earlier assessmentyear and subsequent assessment year in favour of the assesseeand the revenue cannot pray for a different relief in the present appeal as the substantial questions of law are coveredby the earlier decision which has attained finality. Further,the learned counsel submitted that what was argued before thisCourt was raised before the Tribunal by way of a miscellaneousapplication in M.P.No.226/Mds/2015 which was dismissed by orderdated 25.02.2016 and the appellant is not on appeal against thesaid order which has attained finality and the revenue shouldnot be permitted to canvass the points now sought to be urgedbefore this Court for the first time and not when the earlierappeals were heard. 9.After elaborately hearing the learned counsels for theparties, we are of the view that the decision in the assessee'sown case in T.C.A.Nos.287, 288, 296 and 298 of 2020 dated08.10.2020 will hold good and the order passed by the Tribunalis liable to be confirmed. We support such conclusion with thefollowing reasons. 9.After elaborately hearing the learned counsels for theparties, we are of the view that the decision in the assessee'sown case in T.C.A.Nos.287, 288, 296 and 298 of 2020 dated08.10.2020 will hold good and the order passed by the Tribunalis liable to be confirmed. We support such conclusion with thefollowing reasons. 10.Firstly, as rightly pointed out by the learned counselfor the respondent/assessee, identical issue was canvassedbefore the Tribunal by way of a miscellaneous petition which wasconsidered by the Tribunal and the Tribunal examined the factualbackground as to why the assessee Board had to remit thesemonies into a separate fund which was admittedly created for thewelfare of the employees. The moot question would who are thoseemployees who may be benefited. Those employees were initiallyemployed in the Port Department and the State Government gave anoptiontothoseemployeestoworkundertherespondent/assessee/Board and it was made clear that theemployees who opted to work under the assessee/Board to have thesame tenure, remuneration, rights and privilege as to pensionand gratuity. Therefore, these set of employees who admittedlyis a diminishing group, their service conditions could not bealtered because as per the option given by the State Governmentif exercised by the concerned employee of the erstwhile PortDepartment, none of their service conditions which wasprevailing when they were working in the Port Department couldbe altered. Admittedly, the absorption based on the optionexercised by those employees took place in the year 1997 andremittances have been made to the fund ever since. The presentattempt of the revenue to deny the deduction was for the firsttime during the assessment year 2007-2008. It is not clear asto what prompted the revenue to do so. In any event, theassessee has got relief from the Tribunal for the assessmentyears 2007-2008, 2009-2010 and 211-2012 which orders wereconfirmed by this Court in T.C.A.Nos.287, 288, 296 and 298 of2020 dated 08.10.2020. It was never the assessee's case thatthe funds to which they have remitted money is an approved fund. 11.In contradiction with the cases which were relied on bythe revenue where two provisions were pitted against each other,namely, Section 36(1)(iv) and Section 40A(9) of the Act. Thequestion was when deduction was impermissible under Section 36(1)(iv) r/w. Section 40A(9) of the Act, whether the assessee canclaim deduction under a general provision, namely, Section 37 ofthe Act. This question was rightly answered in favour of therevenue and against the assessees in all the four decisionsreferred above. However, in the instant case, the assesseenever claimed any benefit under Section 36 of the Act nor wasits claim that the remittance is towards a fund which wasapproved by the Department. Admittedly, approval was granted on19.03.2014 with effect from 02.08.2013 by the respondentDepartment. Therefore, the period in dispute is hardly fiveassessment years of which for three assessment years, the Courthas decided the matter in favour of the assessee and the fourthyear is the year under consideration in this appeal. Therefore,the Tribunal took note of the facts and as to under whatcircumstances remittance had to be made and when therespondent/assessee had no option except to accept thoseemployees who had exercised option and joined the services ofthe Board to be entitled to all service benefits as if they wereemployees of the Port Department of the State Government.Hence, we are of the view that the case on hand has to be dealtwith entirely on a different yardstick, more particularly, onthe factual position which we have elaborated above. 12.At this juncture, we may refer to the decision of theHon'ble Supreme Court in the case of Commissioner of Income Taxvs. Textool Co. Ltd., [(2013) 216 Taxman 327(SC)], wherein theHon'ble Supreme Court explained the real intention of Section 36(1)(v) of the Act. It was held that from a bare reading of thesaid provision, the real intention behind the provision is thatthe employer should not have any control over the funds of theirrevocable Trust created exclusively for the benefit of theemployees. Admittedly, there is no such allegation against therespondent/assessee, alleging that this was a device adopted bythe assessee as a vehicle for tax avoidance. In fact thisaspect is what weighed in the minds of the Court while decidingthe case in Aspinwall & Co. Ltd. and precisely for such reason,the Court referred to the explanatory note attached to Section40A(9) of the Act. The note clearly states that the Trustwhich have been set up as a discretionary Trust with absolutediscretion to the trustees to utilize the trust property in suchmanner as they may think fit for the benefit of the employeeswithout any scheme or safeguards for the proper disbursement offunds would be used as vehicle for tax avoidance. By claimingdeduction in respect of such contribution which may even flowback to the employer in the form of deposits or investments inshares, etc. Furthermore, the assessee in the said case had no governmental control. Equally are the decisions in the case ofN.Radha Bai and Sony India (P) Ltd. 13.As pointed out earlier, the proposition laid down in theaforementioned three decisions relied on by the revenue statingthat if the assessee is not entitled to claim deduction underSection 36 of th Act, he cannot be allowed to claim deductionunder Section 37 of the Act. There can be no quarrel on thislegal proposition. Nevertheless we need to decided the casebased on facts. As explained in the case of Textool Co. Ltd.,the intention behind the provision assumes importance. Therecan be no allegation that the respondent Board had adopted suchprocedure as a tax avoidance measure rather it was a duty castupon them based on the direction issued by the Government. 14.The revenue sought to distinguish the decision in thecase of Commissioner of Income Tax vs. Kattabomman TransportCorporation Ltd. [(2004) 268 ITR 0507] by contending that theemployees therein were under deputation, whereas the employeesfor whom the respondent/assessee had effected the deposits havebeen absorbed. On noting the facts in the instant case, we findthat the case on hand is a better case on facts than that ofKattabomman Transport Corporation Ltd. as absorption into therespondent/assessee/Board is pursuant to the State Governmentdecision which gives option to the erstwhile employees of thePort Department to become permanent employees of therespondent/assessee/Board subject to the condition that theirservice conditions which include gratuity remains unaltered.Therefore, the decision in Kattabomman Transport CorporationLtd., would fully apply to the facts and circumstances of thecase. 15.In the light of the above, we are of the view that thedecision 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 andconsequently, the substantial questions of law framed forconsideration in this appeal have to be answered against therevenue and accordingly answered. 16.In the result, the tax case appeal is dismissed. Nocosts. Sd/- Assistant Registrar(CS VI) //True Copy// Sub Assistant Registrar cse To 1. The Income Tax Appellate Tribunal, 'B' Bench, Chennai. 2. The Commissioner of Income Tax, (Appeals)-2, Chennai. 3. The Assistant Commissioner, of Income Tax (Circle II), Chennai. +1cc to M/s.N.V.Balaji, Advocate, S.R.No.42387+1cc to M/s.T.Ravikumar, Advocate, S.R.No.42210 TCA.No.447 of 2016 RLD[co]NSK 16/09/2021