2000 (3) TMI 26 - HC - Income Tax

Summary

Issues:
1. Allowability of deduction for payment to flag day fund.
2. Entitlement to deduction for contribution towards provident fund under section 36(1)(iv) of the Income-tax Act.

Issue 1: Allowability of deduction for payment to flag day fund:
The High Court considered Tax Case No. 2129 of 1984, where the Tribunal referred a question regarding the deduction of Rs. 12,500 made by the assessee to the flag day fund. The court referenced previous decisions and held in favor of the assessee, stating that the payment towards the flag day contribution was indeed an allowable deduction. The court relied on precedents like CIT v. Cheran Transport Corporation Ltd. and Sri Venkata Satyanarayana Rice Mill Contractors Co. to support their decision. Therefore, the question raised by the Tribunal at the instance of the assessee was answered in the negative, favoring the assessee and against the Revenue.

Issue 2: Entitlement to deduction for contribution towards provident fund under section 36(1)(iv) of the Income-tax Act:
Regarding the issue raised by the Department, the court examined whether the assessee was entitled to a deduction of Rs. 13,14,124 contributed towards the provident fund under section 36(1)(iv) of the Income-tax Act. The Income-tax Officer initially disallowed the contribution, citing that it was made towards an unrecognised provident fund. However, the Tribunal disagreed, stating that the fund was established under the Employees' Provident Fund and Miscellaneous Provisions Act, 1952. Despite the lack of recognition by the Commissioner of Income-tax at the time, the Tribunal allowed the deduction based on the fund's nature. Subsequently, the Commissioner of Income-tax, Madurai, granted recognition to the provident fund during the court proceedings. The court upheld the Tribunal's decision, emphasizing that the recognition granted by the Commissioner validated the deduction claim. Therefore, the court answered the questions in the affirmative, favoring the assessee and against the Revenue, concluding that the assessee was entitled to the deduction for the contribution made to the provident fund.