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The Commissioner of Income Tax, Panchkula Versus M/s Haryana Financial Corporation

2015 (10) TMI 253 - PUNJAB AND HARYANA HIGH COURT

Expenditure incurred on payments made to the pensioners - whether is allowable as revenue expenditure notwithstanding the fact that the said amount was not an allowable deduction under section 36(1)(iv) and (v)? - Held that:- An analysis of the provisions of section 36(1)(iv) of the Act shows that any sum which is paid by the assessee as an employer to a recognised provident fund or an approved superannuation fund is admissible as deduction thereunder. Under Clause (v) of Section 36(1) of the Ac .....

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he Act. Therefore, the said amount also could not be allowed as deduction under Section 37(1) of the Act as held by the Delhi High Court in Sony India P. Limited's case (2006 (6) TMI 76 - DELHI High Court ).

In so far as actual payment made to the pensioners is concerned, the same has been held to be admissible to the assessee on the principle that where an expenditure which is wholly and exclusively expended for the purposes of the business or profession of the assessee is permissibl .....

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This order shall dispose of ITA Nos.51 of 2015, 370 and 399 of 2014 as learned counsel for the parties are agreed that the issue involved in all these appeals is identical. However, the facts are being extracted from 2. ITA No.370 of 2014 has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, the Act ) against the order dated 27.3.2014, Annexure A.III passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B', Chandigarh (in short, the Tribuna .....

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n the basis of total contribution to the unrecognized Pension Fund, therefore, the decision of Hon'ble ITAT is self contradictory? ii) Whether on facts and in the circumstances of the case, the Tribunal was justified in holding that the amount actually disbursed to the pensioners is allowable as revenue expenditure notwithstanding the fact that the said amount was not an allowable deduction under section 36(1)(iv) and (v) of the Income Tax Act, 1961? 3. A few facts relevant for the decision .....

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for the assessment year 2002-03 and ₹ 56,33,188/- for the assessment year 2003-04. The deduction claimed by the assessee was disallowed under Section 36 of the Act by the Assessing Officer. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the order passed by the Assessing Officer. The assessee filed appeal before the Tribunal. Vide order dated 30.9.2008, the Tribunal referred the matter to the Assessing Officer with the observation that since the matter had not been examined in its .....

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he case of Sony India P. Limited vs. Commissioner of Income Tax (2006) 285 ITR 213 (Del.). The assessee filed appeal before the CIT(A). The CIT (A) held that contribution to unrecognized pension funds was not allowable in view of provisions of Section 36(1)(iv) and (v) of the Act and dismissed the appeal vide order dated 16.5.2011, Annexure A.II. The assessee filed appeal before the Tribunal. The Tribunal vide order dated 27.3.2014, Annexure A.III held that the expenditure incurred on payment ba .....

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he contribution to the pension fund. Hence the instant appeals by the revenue. 4. We have heard learned counsel for the parties. 5. Learned counsel for the revenue submitted that the Provident Fund and the gratuity fund were unrecognized and therefore, no expenditure could be allowed as deduction under Section 36(1)(iv) and (v) of the Act. It was urged that what was not allowed directly could not have been indirectly allowed even under section 37(1) of the Act. Learned counsel relied upon judgme .....

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ontributed towards the pension fund as it was less than the actual disbursement for the assessment year 2003-04 which was legally permissible. 7. After hearing learned counsel for the parties, we find substance in the submissions of learned counsel for the assessee. It would be expedient to reproduce Sections 36(1)(iv) and (v) of the Act which is in following terms:- 36 (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in comp .....

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ntributions 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; (v) any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust . An analysis of the provisions of section 36(1)(iv) of the Act shows that any sum which .....

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/superannuation fund and gratuity fund. Thus, the assessee was not entitled to any deduction in respect of the said amounts either under Section 36(1)(iv) or Section 36(1)(v) of the Act. Therefore, the said amount also could not be allowed as deduction under Section 37(1) of the Act as held by the Delhi High Court in Sony India P. Limited's case (supra). 9. Now another issue that arises for consideration relates to the deduction on account of actual payment made to the pensioners totalling & .....

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om the income under Section 37 of the Act. There was no error in the approach of the Tribunal in allowing the aforesaid expenditure as deduction under Section 37 of the Act. 10. The Supreme Court in Shree Sajjan Mills Limited vs. Commissioner of Income Tax, MP Bhopal and another, AIR 1986 SC 484 held as under:- 24. The right to receive the payment accrued to the employees on their retirement or termination of their services and the liability to pay gratuity became the accrued liability of the as .....

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came payable during the previous year and claim it as an expenditure on the accrued basis under section 37 of the said Act. Since the amount of gratuity payable in any given year would be a variable amount depending upon the number of employees who would be entitled to receive the payment during the year, the amount being a large one in one year and a small one in another year, the employer often finds it desirable and/or convenient to set apart for future use a sum every year to meet the contin .....

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rt money which might become expenditure on the happening of an event is not expenditure. (See in this connection the observations of this Court in Indian molasses Co. (P) Ltd., v. Commissioner of Income-tax, West Bengal), 37 I.T.R. 66 at pages 76 & 80. A distinction is often made between an actual liability in praesenti and a liability de futuro, which for the time being is only contingent. The former is deductible but not the latter. 11. Similarly in W.T.Suren and Co. Limited vs. Commission .....

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s and the employees working in that unit becoming surplus resulting in termination of their services. Other business of the assessee, as held by the Tribunal, continued. Payment of gratuity amount to Rallis India Ltd. was not made by the assessee of its own but at the instance and on behalf of the employees whose services though terminated in the assessee company were taken over by Rallis India Ltd. with the promise of continuity of service in Rallis India Ltd. As far as the assessee is concerne .....

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llis India Ltd. terminated including the gratuity due on account of service rendered in Rallis India Ltd. as per the scheme relating to gratuity of that company. Payment of amount of gratuity to Rallis India Ltd. was made as per the scheme of the assessee and it was not an ex-gratia or some isolated payment. It was never disputed and, in fact, no question raised if the service of the employees of the assessee were not terminated and that being the position, the obligation of the assessee to make .....

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