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TMI Blog1979 (5) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... der-valuation of stock 1,86,962 (ii) Out of expenditure in Agro Aviation Division 1,25900 (iii) Out of initial contribution of Rs. 7,03,143 to the superannuation fund holding one-fifth of 80 per cent is allowable 5,90,640 2. Besides challenging the legality of the assessment under section 148/ 147(b), the assessee contested all the aforesaid three additions/disallowances. For reasons given in paragraphs 3 and 4 of his order, the AAC upheld the validity of the supplementary assessment. On merits of the additions/disallowances, however, the AAC held (vide paragraph 5) that the assessee was entitled to the allowance of initial contribution to superannuation fund at one-fifth of 100 per cent as against the allowance by the ITO at one-fifth of 80 per cent. For reasons given in paragraph 7 of the order, he limited the disallowance out of expenditure in Agro-Aviation Division to the extent of ransom paid. It is pertinent that total cash expenditure defrayed by Shri P.G. Dastur through Shri Kalidas, the man-in-charge of the job, was Rs. 1,02,200 as against which the ITO had estimated such payments at Rs. 1,25,000. According to the AAC, the disallowance of Rs. 1,02,200 alone was justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctuous and required to be treated as not pressed. It may also be observed that the assessee has also not pressed ground Nos. 1 and 2 in the appeal memo challenging the legality of assessment as such. There, thus, remains two grounds in each appeal involving common issues. 5. Shri B.K. Khare, the learned counsel for the assessee, has submitted that the departmental authorities have failed to appreciate that contribution of Rs. 7,03,143 by the assessee to superannuation fund is not the initial contribution contemplated in section 36(1)(iv) of the Act, rules 87 and 88 of the Income-tax Rules, 1962 (' the Rules '), and Notification No. SO 3433, dated 21-10-1965, see Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn., p. 206 issued by the CBDT. Alternatively, he contended that rules and the Notifications in this behalf are in excess of the powers of rule making authority and are in conflict with the provisions of the section and, therefore, have to be ignored. The departmental representative has, on the other hand, pointed to the assessee's own description of the contribution and the provisions of section 36(1)(iv) and the rules. He stated that the Tribunal was not competent to consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the head ' Salaries ' or to the contributions or to the number of members of the fund ;" The clause provides for allowance of any sum paid to a recognised provident fund or an approved superannuation fund, subject to : " (a) 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 (b) 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." [Emphasis supplied] To our mind the limits (to be prescribed) as contemplated in the first limb are for the purpose of recognition or approval of the fund and not for the allowance of sums paid. The conditions (also to be prescribed) contemplated in the second limb, it appears, are of two types, namely, the conditions in cases : (i) where the contributions are not in the nature of annual contributions or fixed amounts ; or (ii) where the contributions are not in the nature of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether recognised or not) in respect of that employee for each such year." also do not contemplate any limit for allowance except for the following phrase used in rule 88 : " Subject to any condition which the Board may think fit to specify . . " This phrase also, to our mind, refers to the conditions for approval, investment and/or management of the fund and not to the allowance of any sum contributed. Otherwise prescribing of limits in the rule itself would be meaningless. The notification in question, therefore, is beyond the powers of the CBDT. No doubt, as creature of the Act, we are not competent to consider vires of the Act or may be of the rules made thereunder. However, where there is conflict between the provisions of the Act and the rules, it is a settled law that the rule must give way to the provisions of the Act, much more when the conflict is between the provisions of the section and a notification or circular issued by the Board. This is in spite of the fact that we agree with the departmental representative that the contribution by the assessee referable to the past services of an employee might be known as initial contribution within the meaning of rule 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut to submit to the extortionate demands of the Chief Minister and the Minister, for gratifications. They were in such a situation, that the only alternative to non-compliance with these extortionate demands was their utter ruin." In the circumstances, there is no difficulty in holding that the assessee was helpless in the matter and that but for the payments made, it would not have been possible for the assessee to recover its dues from the Tamil Nadu Government. The question that arises for consideration is : Does these payments become less illegal just because they were made under duress ? To our mind, whatever may be the circumstances illegal payments will continue to be illegal and since there was no obligation to carry on business illegally, we are inclined to hold that irrespective of the purpose the payments made in this manner cannot be allowed as deduction under section 37. However, we agree with Shri Khare, the assessee's counsel, that the payments so made should be taken at Rs. 55,404 as found by the Sarkaria Commission. The departmental authorities have not found any other payments made illegally to the Tamil Nadu Government. In the circumstances, there is no justific ..... 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