TMI Blog1988 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ? " The assessee is a public company. For the income-tax assessment year 1976-77, its previous year ended on December 31, 1975. In the previous year relevant to this assessment, it appears, the assessee contributed a sum of Rs. 2,59,451 by way of initial contribution to an approved super annuation fund. In the return filed, however, the assessee claimed deduction of only Rs. 41,512 arrived at on the basis of Notification No. SO 3433 dated October 21, 1965, of the Central Board of Direct Taxes. The Income-tax Officer accepted the claim for deduction of the sum of Rs. 41,512 and completed the assessment. At that stage, the assessee seems to have realised that it has committed an error in asking for deduction of only Rs. 41,512 against the total contribution of Rs. 2,59,451. It appears, the assessee was advised that the notification above referred to of the Central Board of Direct Taxes has no application in the facts and circumstances of the case, and, consequently, the assessee would be entitled to claim deduction of the entire sum of Rs. 2,59,451. The assessee filed an appeal before the Commissioner of Incometax (Appeals) against the assessment made by the Income-tax Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the order of the Tribunal containing the relevant facts and the legal propositions and will not have to grope in the dark for finding out the facts and the reasons for the Tribunal arriving at a particular decision. We hope we will not have any occasion in the future to Comment on the inadequacy of the Tribunal's orders rendering it very difficult for this court to answer the questions referred. While standing counsel for the Department does not have a copy of the Bombay Bench order relied upon, Sri M. J. Swamy, learned counsel for the assessee, has fortunately supplied a copy of the order on which reliance had been placed by the Tribunal. We have gone through that order. Section 36(1)(iv) of the Act deals with the deductions on account of contribution to a recognised provident fund or an approved super annuation fund. The provision is in the following terms: "S. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-... (iv) any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved super annuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board to make rules limiting the ordinary annual contribution and any other contributions to an approved super annuation fund by an employer. In exercise of this power, the Board issued Notification No. SO 3433 dated October 21, 1965. This Notification is extracted below: " CONTRIBUTION TO APPROVED SUPER ANNUATION FUND-CONDITIONS SPECIFIED UNDER CLAUSE (iv) OF SUB-SECTION (1) FOR THE PURPOSES OF DEDUCTION OF CERTAIN CONTRIBUTIONS: In exercise of the powers conferred by clause (iv) of sub-section (1) of section 36, the Central Board of Direct Taxes hereby specifies the following conditions for the deduction of contributions, not being 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 namely : 1. The total amount of contribution that shall be taken into account for the purposes of this notification shall not exceed twenty-five per cent. of the employee's salary for each year of his past service with the employer as reduced by the employer's contribution, if any, to any provident fund (whether recognised or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions for the establishment of super annuation funds and the approval thereof by the departmental authorities. It is claimed that once the super annuation fund is approved, section 36(1)(iv) does not contemplate prescribing any limitations for the allowance. The entire amount of contribution will have to be allowed. It is urged that the super annuation fund to which contribution has been made in the previous year was established several years ago by the assessee. The " initial contribution " made during the year is not contribution made at the time of establishing the super annuation fund and consequently neither rule 88 nor the Notification No. SO 3433 dated October 21, 1965, has the effect of restricting the contribution made for the purpose of deduction under section 36(1)(iv) of the Act. It is further contended that the Notification No. SO 3433 dated October 21, 1965, issued by the Central Board of Direct Taxes is in excess of the power conferred by section 36(1)(iv) of the Act and should be disregarded for that reason. It is urged that section 36(1)(iv) conferred power on the Board only to lay down " conditions ". The " conditions " referred to in the second limb of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the clear language in section 36(1)(iv), we are unable to accept this submission of learned counsel. As already pointed out, section 36 of the Act deals with deductions in computing the income referred to in section 28. Clause (iv) of section 36(1) refers to the deduction on account of contribution to recognised provident fund or an approved super annuation fund. The first limb of clause (iv) states that any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved super annuation fund, shall be allowed subject to such limit as may be prescribed for the purpose of recognising a provident fund or an approved super annuation fund, as the case may be. The intention is quite clear. Certain limits for contribution are prescribed for the purpose of recognising a provident fund or approving a super annuation fund, as the case may be. It should be borne in mind that contributions made to a recognised provident fund or an approved super annuation fund alone qualify for deduction under section 36(1)(iv). Contributions made to unrecognised funds do not qualify for deduction under clause (iv). Whatever limits of contribution are prescribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious year in which an employee earns eligibility, the employer has to make two payments. The first payment is the annual contribution to the super annuation fund relating to the year in which the employee became a member. The second payment is the contribution made for the past five years when the employee was not a member. The second payment is known as " initial contribution ". Rule 88, therefore, specifies the limits within which initial contributions to the super annuation fund should be allowed. The limit prescribed is that the contributions shall not exceed 25% of the employee's salary for each year of his past service with the employer as reduced by the employer's contribution, if any, to any provident fund or super annuation fund in respect of that employee for each such year. Now, if rule 88 merely provided this limit, there can be little doubt that the entire amount of initial contribution, subject to the limits specified therein, would be allowed as a deduction in the year in which the initial contribution was liable to be made. But rule 88 starts with the prefix that the limits specified there are subject to any condition which the Board may think fit to specify unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged by the first limb of section 36(1)(iv) As far as we see, rule 11 of Part B of the Fourth Schedule has nothing to do with the Board's power to specify conditions governing the allowance of contributions to the super annuation fund. In exercise of the power conferred by the first limb of clause (iv) of sub-section (1) of section 36 and also rule 11 of Part B of the Fourth Schedule, the Board has framed rules specifying the limits for the annual contributions as well as initial contributions. These are rules 87 and 88 of the Income-tax Rules. The matter would have ended there if the second limb of section 36(1)(iv) did not confer power on the Board to specify such conditions as the Board may think fit for the purpose of allowing contributions to the provident fund or super annuation fund. In exercise of the power conferred by the second limb of section 36(1)(iv), Notification No. S. O. 3433 dated October 21, 1965, was issued and that is clear from the heading of the notification itself. The heading is " Contributions to approved super annuation fund-conditions specified under clause (iv) of sub-section (1) for the purpose of deduction of certain contributions ". The preamble to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two directions. Firstly, 1/5th of the deductible allowance is directed to be allowed in the year in which the initial contribution was actually paid. This condition is contrary to the provisions of law. An employer maintaining accounts on the mercantile system is under no obligation to make the actual payment. An employer can show that he has incurred liability to pay the initial contribution in the previous year by reason of eligibility earned by the employee to become a member of the super annuation fund. As the liability is incurred in the previous year, it constitutes a deduction for that year, whether or not it is actually paid. It is not open to the Board to specify a condition that unless it is actually paid, it shall not be allowed as a deduction. The Board has no power to specify a condition contrary to the provisions of law. The second direction in which the Board specifies is the division of deductible allowance into five annual instalments. There could be little doubt that had it not been for this division, the entire amount would have to be allowed as a deduction in the year in which the liability is incurred. It cannot be said that the division of deductible allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional validity of the provisions as opposed to the validity of subordinate legislation with reference to the provisions of the Act itself. Learned standing counsel does fairly admit that the Supreme Court decision referred to above does provide that even in a reference proceeding, if the subordinate legislation is held to be in excess of the power conferred, it could be ignored and the matter decided keeping in mind the provisions of the Act which are paramount. We think that in the facts and circumstances of this case, we must invoke the doctrine of " reading down " and apply the principle enunciated by the Supreme Court in the above referred case. We may refer to the following observations of the Supreme Court (p. 48): "It is true that the Tribunal's powers in dealing with appeals are of the widest amplitude and have, in some cases, been held similar to, and identical with, the powers of an appellate court under the Civil Procedure Code. Assuming that for the aforesaid reasons the Appellate Tribunal is competent to set aside an order dismissing an appeal for default in exercise of its inherent power, there are serious difficulties in upholding the validity of rule 24. It clea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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