TMI Blog2018 (7) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... erein above. Accordingly, ground nos. 5 to 9 of the assessee appeal for assessment year 2011-12 and ground nos. 1 to 5 for assessment year 2012-13 are allowed for statistical purposes. Disallowance of Contribution to Employees Pension Fund paid to Aviva Life Insurance Ltd. - allowable business expenditure - Held that:- The payment of insurance premium paid by the assessee was made on behalf of its employee. Hence it squarely falls as an expenditure incurred for the welfare of its employees. It is not in dispute that the proceeds of the insurance policy does not fall back on the assessee and that the assessee would have no control over those funds and the said funds cannot be utilized by the assessee for its business purposes. In other words, the said funds exclusively belongs only to the employees. In this scenario, the payment made towards insurance premium would have to be construed as an expenditure incurred wholly and exclusively for the purpose of business and squarely allowable u/s 37(1) Disallowance of Interest paid on Members’ Welfare Funds - Held that:- We find that the assessee had made specific earmarked investment in fixed deposits maintained for members’ welfare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 to 4 for assessment year 2011-12 The brief facts of this issue is that the assessee is a registered Co-operative Bank having banking licence from Reserve Bank of India and carrying on business of banking for its members as well as non-members. The ld. AO on perusal of the tax audit report submitted by the assessee noticed that the assessee had made provision for gratuity of ₹ 22 lacs. during the year under consideration. The said sum of ₹ 22 lacs was not disallowed by the assessee. Hence the ld. AO by applying the provision of section 40A(7) of the Act disallowed the sum of ₹ 22 lacs while completing the assessment. During the year under consideration, the assessee had actually made settlement of gratuity to S.R. Mukherjee of ₹ 7,32,450/- and to D. Swapan Chakraborty of ₹ 9,63,436/-. The total actual payment of gratuity made during the year by the assessee to its retired employees was ₹ 16,95,886/-. The action of the ld. AO was upheld by the Ld. CIT(A). Aggrieved, the assessee is in appeal before us. 3. We have heard rival submissions. We find lot of force in the argument of the ld. AR that the actual settlement of gratuity to retired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d herein above. Accordingly, ground nos. 5 to 9 of the assessee appeal for assessment year 2011-12 and ground nos. 1 to 5 for assessment year 2012-13 are allowed for statistical purposes. 6. Disallowance of Contribution to Employees Pension Fund paid to Aviva Life Insurance Ltd. Ground no. 10 for assessment year 2011-12 Ground No. 6 for assessment year 2012-13 The brief facts of this issue is that the assessee debited an amount of ₹ 2,34,000/- as Bank s Contribution to Employees Pension Fund in schedule 16 (operating expenses in its profit and loss account). The assessee vide its letter dated 03.12.2013 submitted that it is contributing towards pension policy of the employees obtained from Aviva Life Insurance Company ltd. The employers contribution (i.e. bank s contribution) made during the year was ₹ 2,34,000/- relevant to assessment year 2011-12. The ld. AO applied the provision of section 80CCD of the Act and held that any contribution made by the employer under a pension scheme notified by the Central Government would be eligible for the claiming deduction and the assessee had failed to bring any evidence on record to substantiate that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee submitted as under: The amount received from members by way of Contribution to welfare fund is being utilized for the purpose of the business of the assessee. The expenditure by way of interest on welfare fund was incurred as a part of assessee legitimate commercial requirement in order to facilitate the carrying on its business. This expenditure was an integral part of the profit earning process of the assessee. However, interest payable on the said fund is being credited through Members Upliftment fund. Hence, the interest payable on members welfare fund should be allowed as deduction. In addition to our earlier submission dated 10.02.2014 in connection with interest paid on Members Welfare Fund we would like to further submit that no amount has been credited to the Members Welfare Fund out of appropriation of profit. However, as per the decision of the Board of Directors of the bank one fund was created named as Member Welfare Fund (Prov) a/c. for the purpose of paying benefit to the members of the society. The amount transferred from appropriation account was credited to the said Member Welfare Fund (Prov) a/c. Subsequently, another account named as Member Uplif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney has been utilized by the Bank for the purposes of the business of the assessee. The Ld AO cannot disallow the interest incurred on such liability. 2. The creation of Members Welfare Fund has been made on the basis of the Bye Laws of the constitution the assessee. Relevant extracts are being reproduced as below: (Annexure 3 - xerox of the relevant portion) 'DISPOSAL OF PROFIT 57. i) Subject to the provisions of Act and the Rules the net profits of the bank shall be distributed in the following order namely a. ten per centum or such proportion as the General Meeting may decide shall be carried to the reserve fund; b. an amount not exceeding five per centum of Net Profit or maximum rupees seven thousand five hundred shall be contributed to cooperative Education Fund. c. Not less than fifteen per centum of net profit shall be transferred to bad Debt Fund. ii) The balance of the realized profits as certified by the audit officer may subject to the provisions of the Act and the rules and in accordance with the decision of the General Meeting be applied to all or any of the following purposes namely. a. to be making of a di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te specified under the provision of any law or terms of contract, for the sum to be allowed as employers contribution, towards such funds, so that there would be applicability of section 36(1)(va) of the Act. With these observations, he upheld by the ld. AO. Aggrieved, the assessee is in appeal before us. 9. We have heard rival submissions. At the outset, we find from the balance sheet of the assessee for the year ended 31.03.2011 that under schedule 3 of deposits, the assessee had reflected total members welfare fund of ₹ 3,56,56,866/- as on 31.03.2011. On this fund, the assessee had paid interest of ₹ 25,20,700/- for the year ended 31.03.2011. We find that the assessee had paid average interest rate of 7% on the members welfare fund. From the details available in page 134 of paper book, we find that the assessee had made specific earmarked investment in fixed deposits maintained for members welfare fund and had derived interest income thereon at the average rate of 11.34% which has been duly offered to tax. In any case, the members welfare fund has been utilized for the purpose of business which is not in dispute and the said funds were also deployed by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s interest income from investments etc. The interest has been paid to identified beneficiaries, whose funds are being kept by the assessee and are being utilized for the purpose of that business. As on 31.03.2012, there was a liability for staff provident fund to the extent of ₹ 209.36 lacs. This money has been utilized by the bank for the purpose of business of the assessee. The assessee reiterated its stand as was taken for creation of members welfare fund and stated that even the staff provident fund was created based on authority from Statutes in support of which the relevant extracts from West Bengal Co-operative Societies Act, 2006 were furnished. 11. The Ld. CIT(A) on the same reasoning given by him while addressing the disallowance of interest on the members welfare fund upheld the action of the ld. AO with respect to this disallowance also. Aggrieved, the assessee is in appeal before us. 12. We have heard rival submissions. At the outset, we find from the balance sheet of the assessee for the year ended 31.03.2012 that under schedule 3 of deposits the assessee had reflected total staff provident fund of ₹ 2,09,35,967.38 as on 31.03.2012. On this fund, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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