TMI Blog2016 (5) TMI 1139X X X X Extracts X X X X X X X X Extracts X X X X ..... s capital in nature therefore it is not liable to tax. Accordingly we reverse the order of the lower authorities and ground raised by the assessee is allowed. Disallowance of employees contribution under the PF Act - Held that:- We find that the AO has made the addition of the amount of the employee contribution as there was a delay in payment to PF authorities. However, from the assessment order we find that all the payment of employees contribution were made before the due date of filing of Income Tax Return as specified u/s.139(1) of the Act. Now, this issue stands covered in favour of assessee and against the Revenue by the decision of Hon’ble jurisdictional High Court in the case of CIT v. M/s Vijay Shree Limited [2011 (9) TMI 30 - CALCUTTA HIGH COURT] Disallowance of interest paid for delayed deposit of PF - Held that:- Interest paid on the late deposit of PF is compensatory in nature therefore it should not be disallowed on the ground of treating the same as penal in nature, therefore, it is entitled for deduction while computing the profit under the business head. In this view of the matter, we reverse the action of Authorities below and ground raised by assessee in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceeding assessment year 2003-04 on account of grant-in-aid for an amount of ₹ 48,22,698/- received from the Government of West Bengal and the same was also confirmed by the learned CIT(A) Kolkata. The assessee did not prefer any appeal to the Tribunal against the order of the ld. CIT(A). In view of above, AO has made the addition of ₹ 2,83,41,000/- to the total income of the assessee. 5. Aggrieved, assessee preferred an appeal before Ld. CIT(A) where it was submitted that assessee is a sick public sector undertaking and the grant was received from the Government for the payment of salary and PF dues with the purpose to keep workmen in employment. Therefore it is a capital grant-in-aid and not liable to tax. The assessee has relied in the decision of the Hon ble Delhi High Court in the case of CIT v. Handicrafts and Handlooms Export Corporation of India Ltd. (2014) 360 ITR 130 (Del). However, Ld.CIT(A) disregarded the submission of the assessee by observing in para-2.3 of his order, which is reproduced below:- 2.3 I have gone through the submission of the assessee. It is an admitted act that grants were received towards salary and PF. It was, therefore, an opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted the order of the lower authorities. 6.1 From the aforesaid discussion we find that the assessee has received a grant from the Government of West Bengal which is hundred percent sole shareholder of the assessee company. The purpose of the grant was to utilize towards the payment for salary and PF of the employees. The AO during assessment proceedings observed that the grant was given to meet the revenue expenses therefore it is fully liable to tax. However, the assessee treated the same as capital grant in aid and therefore not liable to tax. From the facts we find that the lower authorities have made the addition on account of the following: 1) The lower authorities relied in the decision of Hon ble Supreme Court in the case of the Sahney Steel Press Works (supra) for treating the grant in aid as the revenue in nature and therefore liable to tax. 2) Similar addition for grant-in-aid was made by the AO in the own case of the assessee for the assessment year the 2003-04. Now let us see the facts of the aforesaid judgment. The Hon ble Supreme Court has referred to salient features of various schemes formulated by the Central / State Governments and the subsidy rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries Deptt., for the purpose of Provident Fund arrear dues in respect of the employees of SEDC Ltd., to the Regional provident Fund Commissioner. 2. The Governor has further been pleased to authorize the Managing Director, State Fisheries Development Corporation Ltd., to act as the Drawing and Disbursing Officer for the amount sanctioned hereinabove. He is also requested to deposit the amount in the deposit account opened in terms of Finance Deptt. Memo No.1230-F dt. 3.2.84 by transfer of credit under the head 8499-Othere deposits-00-120-Deosits of Government Companies and Corporations the allotted sum of ₹ 76.77 lakh (Rupees seventy six lakh seventy seven thousand) only to be drawn by him for the purpose mentioned above. The change of deposit account has been communicated in terms of Finance Deptt. Memo No.8798-F, dated 23.12.98 wef 1.4.99. 3. The Managing Director, State Fisheries Development Corporation Ltd., will please ensure immediately on major utilisation of the abovenoted fund for the purpose stated in para 1 above and send a compliance report to this Deptt. as early as possible. 4. The charge involved will proceed against the head 2405-Fisheri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approached the STC for assistance to enable it to meet its liabilities consequent on such losses and the STC agreed to do so by reimbursing the losses incurred by the assessee. There was, therefore, even in those years an agreement on the part of the STC to recoup the losses made by the assessee. The circumstance, therefore, that in the present year, there was an agreement during the previous year by which the STC agreed to give financial assistance to the assessee will not, therefore, make any difference in principle. We are also of opinion that the other distinguishing feature pointed out by the Department does not also make a difference. As pointed out by the Tribunal the nature and purpose of the payments by the STC to the assessee is the same in earlier years as well as this years. In all the years the STC has only provided monies to the assessee-corporation with the object of enabling it to offset the losses which it had incurred in the curse of its business. The fact that the contribution which the STC was prepared to make to enable the assessee to do this was measured in terms of a percentage of its export earnings and was not a flat or round sum of money as in the prior y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities and ground raised by the assessee is allowed. 7. Next issue raised in ground no. 6 7 by the assessee in this appeal is that the ld. CIT(A) erred in confirming the order of assessing officer by disallowing the employees contribution for ₹ 43,34,151 under the PF Act. 8. During the course of assessment proceedings, AO found that the assessee has not deposited the employee s contribution to Provident fund for an amount of ₹ 43,34,151/- within the due date. Therefore the AO has disallowed the same and added to the total income of the assessee. 9. Aggrieved, assessee preferred an appeal to the learned CIT(A) who has upheld the order of the AO by the observing as under:- 4.1 I am of the opinion that in view of the amended provision of section 143B effective from 01.04.2004 employer s contribution to PF is to be held as admissible. The employees contribution however, is governed by section 36(1)(va) read with section 2(24)(x) and not by section 43B. this section has not been amended and therefore employees contribution is admissible only if it is paid within the due date as prescribed in the PF Act. The assessee made the payment even after the grace per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see s ground of appeal. 11. Last issue raised by assessee in this appeal is that the learned CIT(A) erred in confirming the order of AO by disallowing the interest paid for delayed deposit of PF for an amount of ₹ 5,51,228/- 12. The AO during the assessment proceedings found that the assessee has paid interest of ₹ 5,51,228/- on delayed payment of PF amount. The AO disallowed the same on the ground that this interest being panel in nature and added it to the total income of the assessee. 13. Aggrieved, assessee preferred an appeal to ld. CIT(A) who has upheld the action of the AO by observing as under:- The Assessing Officer observed that the Tax Audit report mentioned the expenses on account of interest for delayed payment of PF as penal in nature. In earlier years, the CIT(A) had upheld not admitting this as a deductable expenditure. The Assessing Officer, therefore disallowed the interest paid towards delayed payment of PF. The assessee in appeal proceedings, has relied on certain decision of the Tribunal to claim that this was not penal in nature and therefore admissible. However, following the decision of my predecessor in the case of the assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T. Act, taking the view that the remaining sum of ₹ 2500 was attributable to personal expenses of the Directors of the assessee company and therefore impermissible deduction under section 37(2) of the I.T. Act. The Assessee appellant did not succeed in appeals before the A.A.C. and in the Income Tax Tribunal. Applications under section 256 (1) of the I.T. Act before the Tribunal and under section 256 (2) in Bombay High Court were rejected. The assessee filed appeal by special leave in Supreme Court. This Court allowed the appeal partly and, HELD: 'Mat the authority concerned has to allow deduction under section 37(1) of the I.T. Act, wherever the concerned impost is purely 983 984 compensatory in nature. Wherever such impost is found to be of a composite nature, that is partly compensatory and partly penal, the authorities are obligated to bifurcate the two components of the impost and given deduction to the component, which is compensatory in nature and refuse the deduction for the component which is penal in nature. Therefore, whenever any statutory impost paid by assessee by way of damages or penalty or interest is aimed, the assessing authority is required to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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