TMI Blog1985 (4) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... le limit was only Rs. 3,000 and he had disallowed a sum of Rs. 3,632 which is found to be in excess under rule 75. On appeal, it is contended that rule 75 does not apply to this case as the contributions are made to the scheme formulated under Employees' Provident Funds and Miscellaneous Provisions Act and not to any provident fund mentioned in Part A of the Fourth Schedule to the Income-tax Act, 1961 ('the Act'). It is further contended that Shri Janardhana Rao contributed to the provident fund in his individual capacity, whereas he held shares in the capacity of the karta of his HUF. In such circumstances, as there is difference among 'person' who contributed to the provident fund and the 'person' holding the shares, even the requirements of rule 75 are not fulfilled to justify any disallowance, out of the total of the contributions made by the employer as well as the employee to the provident fund. Therefore, the addition of Rs. 3,632 to the returned income of the assessee is unjustifiable and cannot be sustained. The assessee sought to rely upon the decision of a Bench of the Tribunal in J. J. De Chane Laboratories (P.) Ltd. v. ITO [IT Appeal Nos. 1466 to 1468 (Hyd.) of 1982, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the contributions made by the employer as well as employee together for the purpose of applying the ceiling limit. Since only the contribution made by the employer would be relevant for purposes of application of section 36(1)(iv), only the employee's contribution of Rs. 3,652 will have to be taken into account. He held that out of it only Rs. 1,500 is admissible and Rs. 2,132 is to be disallowed. The disallowance was reduced from Rs. 3,632 to Rs. 2,132 by the learned Commissioner (Appeals). Thus, he allowed the appeal filed before him in part. 2. Further, aggrieved by the order of the learned Commissioner (Appeals) dated 27-4-1984, the assessee came up in second appeal to this Tribunal and, thus, the matter stands for our consideration. We have heard Shri G. Rajagopala Rao, the learned counsel for the assessee, and Shri P. Radhakrishnamurthy, the learned departmental representative. Firstly, it is argued by Shri G. Rajagopala Rao that assuming without admitting rule 75 governs the case. Rule 75(1) which is the concerned rule for our purposes reads as follows : " (1) Where an employee of a company owns shares in the company with a voting power exceeding ten per cent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the HUF and the individual shareholding for purposes of rule 75. Therefore, we are of the opinion that rule 75 applies in such case where the employee of the employer company holds more than 10 per cent of total shareholding. If the individual shareholding of the employee falls short of 10 per cent holding, then the said rule does not apply. For purpose of calculating the individual shareholding the fact that the employee holds some of the shareholdings in a representative capacity either as a karta of his HUF or a partner of a firm, etc., should be ignored and such a shareholding in a representative capacity should not be clubbed or aggregated with the individual shareholding. Therefore, on this point, we reverse the finding of the learned Commissioner (Appeals). 3. Now let us come to the question whether rule 75 applies to the scheme provided under Employees' Provident Funds and Miscellaneous Provisions Act and the contributions made under that scheme both by the employer and the employee. Section 2(38) defines 'recognised provident fund'. Two kinds of provident funds come under the definition. The first is the one governed by rules contained in Part A of the Fourth Sched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under any decree or order of any Court in respect of any debt or liability incurred by the member and neither official assignee appointed under the Presidency Towns Insolvency Act, 1909, nor any receiver, appointed under the Provincial Insolvency Act, 1920, shall be entitled to, or have any claim on, any such amount. Sub-section (2) of the same section is as follows : " (2) Any amount standing to the credit of a member in the Fund or of an exempted employee in a provident fund at the time of his death and payable to his nominee under the scheme or the rules of the provident fund shall, subject to any deduction authorised by the said scheme or rule, vest in the nominee and shall be free from any debt or other liability incurred by the deceased or the nominee before the death of the member or of the exempted employee. " However, this privilege or protection afforded to the employee under the above provisions do not appear to have been provided to an employee contributing to the 'Scheduled Provident Fund'. The learned departmental representative brought to our notice that section 9 of the Employees' Provident Funds and Miscellaneous Provisions Act is as follows : " For the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 36(1)(iv). We feel that this finding is of doubtful veracity. Section 36(1)(iv) is as follows : " (1) The deductions provided in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 : (i) to (iii) (iv) any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head 'Salaries' or to the contributions or to the number of members of the fund ; " So the above provisions disclose that limits are expected to be prescribed for the purpose of recognising the provident fund. The question of recognition does not arise as already discussed above to the provident funds maintained under the Employees' Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme of contribution under the Employees' Provident Funds and Miscellaneous Provisions Act is made applicable by way of understanding and so the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act do not apply to him strictly. It is also stated that the accounts of the employers who are contributing to the provident fund under the Employees' Provident Funds and Miscellaneous Provisions Act, while drawing Rs. 1,600 per month would be maintained separately. We are not impressed with this argument nor does it lead us anywhere. Rule 11(1) of Provident Fund Rules is self explanatory and runs counter to the argument of the learned departmental representative. 4. Now let us consider the famous case of Supreme Court in Gestetner Duplicators (P.) Ltd. v. CIT [1979] 117 ITR 1. The first question that was considered was, whether the commission paid comes under the expression 'salary' within the meaning of rule 2(h) in Part A of the Fourth Schedule. The revenue cited the earlier decision of the Supreme Court in Bridges Roofs Co. Ltd. v. Union of India AIR 1963 SC 1474 in which it was held that 'production bonus' does not form part of 'basic wages' as defined under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployee as well as employer under the Employees' Provident Funds and Miscellaneous Provisions Act has to be made is the term 'basic wages' which does not include production bonus, DA, house rent allowance, over-time allowance, whereas, the contribution, both by the employee as well as employer, should be made under the 'Scheduled Provident Funds' scheme on the basis of 'salary' as defined under rule 2(h) of Part A of the Fourth Schedule which includes 'commission' also as decided in Gestetner Duplicators (P.) Ltd.'s case by the Hon'ble Supreme Court. It is also decided by the Hon'ble Supreme Court in Gestetner Duplicators (P.) Ltd.'s case that there is no difference between the 'wages' and 'salary'. From all the above, we have to conclude that rule 15(1)(b) governing the 'Scheduled Provident Funds' does not apply to the provident fund under the Employees' Provident Funds and Miscellaneous Provisions Act. A fortiori rule 75 does not apply to the provident fund under the Employees' Provident Funds and Miscellaneous Provisions Act. Assuming without admitting that our above finding is not correct under law, even then rule 75 does not apply to the facts of the case, as the conditions set ..... X X X X Extracts X X X X X X X X Extracts X X X X
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