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TMI Blog2025 (1) TMI 1296X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure on account of contribution to approved pension funds ignoring the provisions of Section36(l)(iv) and 40A (9) of the Act read with Rule 87 of the Income Tax Rules, 1962?" 2. Insofar as Question (i) is concerned and pertains to NRI expenses, learned counsels for parties are ad idem that the said issue would have to be answered in favour of the respondent /assessee in light of the order passed by us in Director of Income Tax vs. ANZ Grindlays Bank ITA 563/2007 decided on 19 September 2024, and where we had while dealing with this question held as follows:- "3. Insofar, as the aspect of expenses incurred in garnering FCNR deposits is concerned, we note that the Tribunal has while dealing with this aspect held as follows: - 7.2 During the hearing the Ld. CIT (DR) stated that the CIT (Appeals) had erred in holding that the expenses incurred at places like Singapore, Hong-Kong etc could not be treated as a part of head office expenses and that the same were to be allowed after obtaining the exact details from assessee despite the fact that such expenses were not even debited in the accounts of Indian Branch. In any case the AO had separately allowed a deduction at 5% under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of CIT vs Abu Dhabi Commercial bank reported in 262 ITR 55 where the court have categorically held that 'head office' expenses which are incurred exclusively and ONLY for the Indian business were fully deductible for determining the Indian business profits. No parts of such expenses were disallowable. Reliance was also placed on the decision of the Special Bench of the ITAT in the case of Inspecting Assistant Commissioner vs. Goodricke Group Ltd. reported in 12 ITD 1 (Calcutta). It was further submitted that the learned AO had relied upon the judgment of the Calcutta High Court in the case of UCO Bank Vs. CIT (200 ITR 68) for making this disallowance. That judgement had subsequently been reversed by the Supreme Court in 240 ITR 355(SC), Reliance was placed on Article 7 of the Indo-Australian Double Taxation Avoidance Treaty under which the Business Profits of Permanent Establishment (PE) in India were to be computed. Under Article 7 of the aforesaid Treaty the profits of a PE carrying on business in India were to be computed as if it were a distinct and separate enterprise. Therefore, these expenses which directly and exclusively related to the business in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowable in light of Section 36 (1) (iv) read along with 40A (9) of the Act. 5. The Tribunal has taken the view that the issue would be liable to be answered in favour of the assessee bearing in mind the decision of the Supreme Court in Commissioner of Income Tax vs. Sirpur Paper Mills (1999) 3 SCC 596. 6. Mr. Menon, learned counsel who appears in support of the appeal, has taken us through the relevant statutory provisions contained in the Act as well as the Rules to submit that the limitations as introduced by virtue of Rule 87, and which pegs the contribution at not exceeding 27% of the salary of an employee for each year, would clearly apply and thus the entire contribution as made by the respondent/assessee could not have been claimed as a deductible expense. According to Mr. Menon, this would be the position which would obtain even on a conjoint reading of Section 36 (1) (iv) along with sub-sections (9) and (10) of Section 40A. 7. Having heard the submissions addressed on behalf of respective sides and on going through the judgment of the Supreme Court in Sirpur Paper Mills, we are disinclined to accept the position as canvassed for our consideration by Mr. Menon for rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the deductions provided in the clauses thereof "shall be allowed" when computing income under Section 28. Clause (iv) lists as so deductible any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to limits that may be prescribed for the purposes of recognition of these funds and subject also to such conditions as the Board might think fit to specify in cases where the contributions are not in the nature of 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. 10. The contributions in the instant case were not payments for recognition or approval and, therefore, outside the limits that could be prescribed under clause (iv) in that behalf. 11. It is arguable that the contributions made here are annual contributions of fixed amounts but, for the purposes of these appeals, we will proceed on the basis that they are not and that the Board was, therefore, entitled to make conditions that would apply. Even so, the question is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " or "as contribution to any fund" by an assessee in terms contemplated under Section 36 (1) (iv). The disqualification which is then introduced by sub-section (10) of Section 40A too is coupled to the limits that may be prescribed in the provisions specified therein including Section 36 (1) (iv). 13. The phraseology employed in Section 36 (1) (iv) and when it speaks of "subject to such conditions as the Board made deem fit to specify in cases" is to be read along and in juxtaposition with the expression "for the purpose of recognising the provident fund or approving the superannuation fund" and which stands mirrored and replicated in Rule 88 which again speaks of the initial contribution. 14. Insofar as Rule 87 is concerned, that clearly seems restricted in its application to the ordinary annual contribution that may be made by an employer to a fund and prescribes an outer limit with respect to the employers' contribution insofar as that particular employee is concerned. 15. We find that a similar view stands expressed by the Calcutta High Court which in Principal Commissioner of Income Tax vs. Exide Industries Ltd. ITA No. 95 of 2018 decided on 22 September 2022 has held as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- xxxx xxxx xxxx (iv) any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of 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;" 5. In Part-B of the Fourth Schedule to the Income-tax Act, the subject dealt with is approved superannuation fund. In Clause-(iii) thereunder, the conditions for approval have been given and Clause-(iv) deals with provisions relating to Rules. In terms of the said power, the Board may make rules for limiting the ordinary annual contribution and any other contribution to an approved superannuation funds by an em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment was necessitated due to short-fall discovered in the course of actuarial valuation of the funds which is in exceptional circumstances and has been made to ensure that the superannuation funds will be able to discharge its obligation to the employees. The learned Tribunal bearing the above principle in mind and also taking note of the decision of the co-ordinate bench of the Tribunal in Glaxo Smithkline Pharmaceuticals case (supra) allowed the assessee's appeal. The revenue had challenged the order passed by the learned tribunal in the case of Glaxo Smithkline Pharmaceuticals (supra) before the High Court of Judicature at Bombay CIT v. Glaxo Smithkline Pharmacenticals IT Appeal No. 2232 of 2011 which was dismissed by judgment dated 6th March, 2013. 7. However, we are conscious of the fact that the Hon'ble Division Bench while dismissing the appeal had made an observation that even if the expenditure as claimed is not allowable under section 36 (1) (iv) of the Act, the same is allowable under section 37 of the Act. However, on this aspect there are other decisions of the Hon'ble Supreme Court which have decided otherwise. Therefore, we do not wish to trade int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue is covered in favour of assessee by the judgment of Apex Court in the case of Sasoon J David and Co. Pvt. Ltd. Vs. CIT reported in 118 ITR 261. However the Ld. CIT(A)disregarded the contention of the assessee and confirm the order of AO by observing as under :- "13.4 I have considered the submissions made by the appellant bank. It is seen that section 36(1)(!v) specifically deals with the tax deductibility of contributions made to approve pension funds. Section 40A (9) explicitly places an embargo on the deductibility of any payment made over and above the limits laid down in Rule 87 of the Income Tax Rules. In view of the explicit statutory provisions restricting deductibility of contributions made to approve pension fund in excess of the limits laid down the claim of the appellant made vide letter dated29.7.1999 is not allowable. Hence the addition made on this count as Item 't' of the addition to total income ofRs.9,81,00,000.//-is sustained the appeals appeal is dismissed on this ground. " Being aggrieved by the order of Ld. CIT(A) assessee is in second appeal before us. 57. The Id. AR for the assessee before us submitted that the additional contribution w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion shall only be of 80 per cent. Taking the second part first there is no justification for it. The section states that the deduction shall be wholly allowed. It permits the Board to specify conditions but these conditions cannot have the effect of curtailing the scope of the deduction granted by the section. The amplitude of the deduction permitted by the section cannot be cut down under the guise of imposing a 'condition'. In fact, this is not a condition but an impermissible attempt to rewrite the section. The last condition imposed by the said notification is that the deduction shall be spread out equally over a period of five years commencing with the assessment year relating to the previous year in which the amount was paid. This too is no 'condition' but a provision super-added to the section which does not contemplate any such distribution of the deduction. Under the section the deduction is available in the Assessment year relating to the previous year in which the payment was made and it must be so granted. The second and third conditions aforesaid are not valid." Thus on the above reasoning the deduction is allowable in its entirety. It has been held by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned issued is directly covered in favour of assessee by the judgment of Hon'ble Apex Court in the case of CIT Vs. Sirpur Paper Mills reported in 237 ITR 41 wherein it held as under: "Section 36(1)(lv) states that the deductions provided in the clauses thereof' shall be allowed' when computing income under section 28. Clause (Iv) provides for deduction of any sum paid by' the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to limits that may be prescribed for the purposes of recognition of these funds and subject also to such conditions as the Board .might think fit to specify in cases where the contributions are not in the nature of 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. The contributions in the instant case were not payments for recognition or approval and, therefore, outside the limits that could be prescribed under clause(Iv) in that behalf. It was arguable that the contributions made here w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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