TMI Blog1997 (4) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee as an employer as well as by the employee has to be taken into account to determine the ceiling limit prescribed under rule 75(1) of the Income-tax Rules (hereinafter referred to as "the Rules"). Applying rule 75(1) of the Rules, he disallowed a sum of Rs. 6,600 on the ground that it constituted excess contribution and completed the assessment. The assessee preferred an appeal against the order of assessment before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) held that the entire contribution made by the assessee as an employer is allowable under the provisions of the Income-tax Act. The Revenue preferred an appeal before the Income-tax Appellate Tribunal challenging the order of the Commissioner of Income-tax (Appeals). The Appellate Tribunal considered the matter from two different angles. According to the Appellate Tribunal, rule 75 of the Income-tax Rules has to be construed in the light of rule 15 of Part A of Schedule IV to the Income-tax Act, and if so construed the provisions of rule 75 of the Rules were in direct conflict with the power conferred on the Board under rule 15(1)(b) of Part A of Schedule IV to the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n holding that the entire amount paid would be allowable as a business expenditure. He also submitted that section 36(1)(iv) of the Act empowers the Board to fix the contribution to be made by the employer and rule 15 of Part A of Schedule IV to the Act empowers the Board to prescribe the limit of contribution by the employees and hence the view of the Appellate Tribunal that rule 75 is beyond the rule-making power is not correct in law. According to learned counsel for the Revenue, the total contribution of both the employer as well as the employee should be taken into account in allowing the contribution made by the employer under rule 75 of the Rules. Mr. K. Mani, learned counsel for the assessee, on the other hand, submitted that the view of the Appellate Tribunal is a reasonable one and even if the amount is not allowable under section 36 of the Act, the amount is allowable under section 37 of the Act. We have carefully considered the contentions raised by learned counsel for the Revenue as well as by learned counsel for the assessee. Section 36(1)(iv) of the Income-tax Act provides that deductions provided in the said section will be subject to the limit as may be presc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of Schedule IV deals with the power of the Board to fix the limit of contribution by the employees of the company who are shareholders of the company. Rule 75(1) deals with the total contribution of both the employer as well as the employee. There is no separate limit fixed either for the employer or for an employee which can be the subject-matter of disallowance under section 36 of the Income-tax Act. In other words, rule 75(1) of the Income-tax Rules deals with the joint contribution, but section 36(1)(iv) of the Act and rule 15 of Part A of Schedule IV provide for fixing the ceiling limit for the contribution by the employer and employee separately. In this view of the matter, the view of the Appellate Tribunal that rule 75 providing for fixing the ceiling limit for the joint contribution of the employer and employee, goes beyond the rule-making authority appears to be justified. We also hold that the Tribunal was justified in reading down the rule to limit the contribution of the employer concerned. As already seen section 36(1)(iv) of the Act deals with the contribution of the employer and it is only the employer's contribution that can be the subject-matter of allowance or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such an employee owns shares exceeding ten per cent. of the voting power in the company, the excess amount is taxable in the hands of such employee. Secondly, if rule 75(1) is construed to mean the contribution of an employer should first be taken into account the excess contribution by an employer towards the recognised provident fund, exceeding the prescribed amount can be disallowed in the hands of the employer. Thirdly, the contribution of the employer should normally be matching contribution of the contribution made by the employee to his recognised provident fund. These inbuilt checks provided by various sections of the Income-tax Act clearly show that if there was an excess contribution by an employer to a recognised provident fund to the credit of the employee having some substantial interest in the company, the excess is taken care of in the hands of the employee, or can be disallowed in the hands of the employer also. Therefore, the construction which we are placing on rule 75(1) of the Income-tax Rules does not go against the object of rule 75(1) which obviously was introduced to curb the practice of the employer making excessive contribution to the credit of an employ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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