MANCHANDA, J. - (1.)THIS is a case stated under section 66 (1) of the Income-tax Act, 1922, hereinafter referred to as the Act. The question referred is :
Whether, on the facts and in the circumstances of the case, the sum of Rs. 4,796 paid to the Regional Provident Fund Commissioner is an allowable deduction in the accounts for the assessment year 1961-62 ?

(2.)THE material facts are these. THE assessee is a limited company. THE relevant assessment year is 1961-62, the previous year being the period, April 1, 1960, to March 31, 1961. For the relevant assessment year, the assessee claimed an allowance of Rs. 4,796, being the contribution made by it under the Employees Provident Funds Act (19 of 1952) in respect of the period, 18th April, 1956, to November, 1958. THE amount was disallowed on the ground that it was not an expenditure incurred in the relevant year. THE assessee went up in appeal and contended that it was only in the relevant accounting year that the assessee, as an employer, was compelled to make the contribution by an order of the Regional Provident Fund Commissioner constituted under Act 19 of 1952. THE Appellate Assistant Commissioner, however, held that the liability arose from the 18th April, 1956, onwards and the amount should have been claimed in the earlier assessment years.
On appeal, the Tribunal fairly and properly conceded that the liability to contribute under Act 19 of 1952 was being disputed by the assessee, who bona fide believed that the provisions of Act 19 of 1952 did not apply to it as it had not 50 or more employees within the meaning of that Act. The liability to contribute was not discovered by any inspector under the Act. It was on the 18th November, 1958, that the assessee had itself filled in a pro forma stating that the provisions of Act 19 of 1952 did not apply till the 31st August, 1958, as the number of persons employed was only 49, but as three more person had since been employed, therefore, the scheme under Act 19 of 1952 applied to it from the 2nd November, 1958. A telegram dated 12th September, 1959, was received from the Regional Provident Fund Commissioner, Kanpur, which made a reference from the Regional Provident Fund Commissioner, Kanpur, which made a reference a communication dated the 6th August, requiring the assessee to start provident fund deduction at 6.25 per cent. from the wages of eligible employees from the date of re-start of the factory. Further instructions to follow. The telegram was confirmed by a letter dated the 12th of September, 1959, directing the assessee to start provident fund deductions immediately under telegraphic information to this office. This letter was replied to on the 21st September, 1959, informing the Commissioner, We have enforced the Provident Fund Scheme of the Central Government in the company with effect from 1st September, 1959, and the first deduction of contribution on account of the fund will take place on or after the 1st October, 1959, when the wages and the salaries to the workers for the month of September, 1959, will be discharged. On the 21st September 1959, a resolution was also passed by the company which reads : As the number of workers in the company has now increased to above fifty, the Provident Fund Scheme, 1952, of the Central Government be and is hereby enforced in the company as approved and directed by the Regional Provident Fund Commissioner, U. P., in his communication No. 5217/E.P.F./9/RC, dated the 12th/17th September, 1959, with immediate effect from 1st September, 1959. Up to this stage there seems to have been no dispute that the Act 19 of 1952 was not applicable before the 1st September, 1959, to the assessee-company. For the Regional Commissioner, it was pointed out that on an inspection of the provident fund records of the factory on the 31st December, 1959, it was found that on the 18th April, 1956, the following staff was employed : JUDGEMENT_548_ITR64_1967Html1.htm

He pointed out that as the factory employed 51 persons on the above date, and as the strength of the employees of the factory has always remained 50 or more persons, thereafter the Regional Provident Fund Commissioner had decided that the factory was covered under section 1(3)(a) of the Employees Provident Funds Act, 1952, with effect from April 18, 1956. This appears to have been a decision given under section 13(2) of Act 19 of 1952. Thereupon, a representation was made in connection with the enforcement of the scheme under the Act. It was reiterated that the assessee bona fide believed that it was working with less than 50 employees and as such it was not required to collect any contribution from its employees and as such it was not required to collect any contribution from its employees, nor had it made any such collections. An exemption from payment was therefore sought. Ultimately, by a letter dated the 27th May, 1960, the full exemption claimed was not granted but the assessee was permitted under the third proviso of paragraph 32 of the Employees Provident Fund Scheme, 1952, to recover the employees share of contribution for the said period from their subsequent wages in eighteen monthly installments.

(3.)THE Income-tax Appellate Tribunal took the view that as the Regional Commissioner had retrospectively applied the provisions of the Act from April 18, 1956, the liability under the Act also accrued on that date and not on the date when the Regional Commissioner had actually decided that the Act was applicable to the assessee. THE Tribunal does not appear to have taken into consideration the effect of the admitted bona fide dispute as to the number of employees employed by the assessee on the accrual of liability, though the Tribunal fairly conceded that there were no mala fides on the part of the assessee. THE Tribunal also did not consider the effect of section 9 of Act 19 of 1952, which makes Chapter IXA of the Income-tax Act applicable. THE Tribunal proceeded on the basis that section 10 (2) (xv) of the Income-tax Act was applicable but, as the contribution to the provident fund related to the assessment year 1956-57 to 1959-60, it could not be allowed for the relevant assessment year 1960-61.
The only question which, therefore, falls to be considered is as to when can the impugned expenditure be said to have been incurred by the company in the shape of a statutory contribution as required by Act 19 of 1952 ? It is not doubt a statutory liability imposed by the Act which is a piece of social security enactment. There are, however, certain conditions which must be fulfilled before this Act can apply. It does not apply to every employer. Section 1(3) , at the relevant time, ran :

Subject to the provisions contained in section 16 , it applies -

(a) to every establishment which is a factory engaged in any industry specified in Schedule I and in which 50 or more persons are employed ......