Decided on July 25,1968



- (1.) This is a reference by the Madras Bench of the Income Tax Appellate Tribunal under S.256(1) of the Income Tax Act, 1961 (hereinafter referred to as the 1961 Act) on the application of the assessee. The question referred is: "Whether on the facts and in the circumstances of the case, the appellate Tribunal was right in law in holding that the amount of Rs. 18,578/- Transferred by the assessee to the Provident Fund Commissioner under the provisions of the Employees Provident Fund Act, 1952, was a capital expenditure within the meaning of R.14(1) of Part A of the 4th Schedule of Income Tax, 1961, and was, therefore, not a permissible deduction under S.37(1) of the Act."
(2.) The Appellate Tribunal has furnished a very clear statement of the case; and it is enough, if we quote Para.2 and 3 of that statement for the facts of the case: "The assessee is a private limited company carrying on business in printing and paper. The assessee company was maintaining a private Provident Fund Account for its employees which was, however, not a recognised Fund. In the accounting year ended 31st December, 1961, relevant to the assessment year 1962-63, the company came under the purview of the Employees Provident Funds Act, 1952, and the Scheme framed there under. As per Para.8 of the Scheme, if any of the employees of the company were members of a Private Provident Fund at the commencement of the Scheme, the accumulations in the private Provident Funds standing to the credit of such employees should be remitted into the State Bank of India to the credit of the Employees Provident Fund Account No. 1; and all the amounts relating to the Provident accumulations lying invested in securities should be transferred to the Employees Provident Fund; and the securities thus transferred to the Central Board of Trustees, Employees Provident Fund, should be sent to the Regional Provident Fund Commissioner. Therefore, the Regional Provident Fund Commissioner directed the assessee company to transfer to him the entire amount standing to the credit of the Provident Fund Account of the Company together with the accumulated employees' contribution. In accordance with this direction, the assessee company transferred the entire amount standing in the Fund account to the Provident Fund Commissioner in April, 1961. The amount thus transferred by the assessee company to the Commissioner included a sum of Rs. 18,578/- representing the employer's contribution to the Provident Fund Account of its existing employed from the start of the Fund for which income tax had already been paid in the previous years, as the Fund was not a recognised Fund. In its income tax return for 1962-63 the assessee claimed allowance for this amount in computing its assessable income for that year. The Income Tax Officer rejected this claim on the ground that the company had not actually paid the amount to its employees but only transferred the amount to the State Provident Fund Commissioner and that, therefore, it would amount to a capital expenditure under S.58K(1) of the Income Tax Act, 1922, corresponding to R.14(1) of the 4th Schedule, Part A of the Income Tax Act, 1961." The assessee filed an appeal from the order of the Income Tax Officer first before the Appellate Assistant Commissioner and then before the Appellate Tribunal, both without success; and it therefore moved the Appellate Tribunal for referring the above question for decision to this Court.
(3.) The Appellate Tribunal found that -- (i) the sum of Rs. 18,578/-calimed as deduction by the assessee was an expenditure laid out wholly and exclusively for the purpose of the business of the assessee and that the assessee would therefore be entitled to allowance of this amount under S.37(1) of the 1961 Act provided the expenditure did not come within the category of capital expenditure; (ii) R.14(1) of Part A of the 4th Schedule to the 1961 Act which corresponded to S.58K(1) of the Indian Income Tax Act, 1922 (hereinafter referred to as the 1922 Act characterised the amount transferred by an employer to maintain a provident fund for the benefit of the employees in trust for the employees participating in the fund as a capital expenditure; (iii) in the present case, the assessee had transferred the aforesaid amount to the Provident Fund established under the Employees' Provident Funds Act, 1952 and the amounts so transferred actually vested in the trustees appointed by the Government under this Act; (iv) it did not matter whether the trustees to whom the amount stood transferred were trustees appointed by the assessee or created by a Statute; and (v) sub-r.(2) of R.14 of Part A of the 4th schedule to the 1961 Act applied only to amounts actually paid out of the accumulated balance due to the employees. In the result the Appellate Tribunal held that the amount of Rs. 18,578/- which the assessee transferred to the Provident Fund Commissioner as required by the Employees 'Provident Funds Act, 1952 was in the nature of a capital expenditure and was not liable to deduction in determining the total income of the assessee.;

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