BHAGABATI PRASAD BANERJEE, J. - (1.) THE Tribunal has referred the following questions of law before this Court under s. 256(1) of the IT Act, 1961 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to deduction of Rs. 61,950 only, representing one-fifth of 80% of the initial contribution made towards an approved superannuation fund during the previous year relevant to asst. yr. 1977-78, and not to deduction of the entire amount of the initial contribution of Rs. 3,87,187 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in computing disallowance under s. 40A(5) of the IT Act, 1961, in the case of one of the employees of the assessee, who occupied a flat owned by the assessee for a part only of the previous year, the entire amount of depreciation allowed to the assessee should be taken into account and not the depreciation proportionate to the period of occupation by the employees concerned ?"
(2.) THE assessment year involved is the asst. yr. 1977-78. THE facts of the case as set out in the statement of the case are as follows : "THE assessee is a company. In the previous year corresponding to asst. yr. 1977-78 it created a superannuation fund for the benefit of its senior employees and claimed recognition for it from the CIT in terms of the provisions of Part B of Schedule IV to the IT Act, 1961. THE CIT recognised the said superannuation fund created by the company w.e.f. 26th Nov., 1976. THE accounting year of the assessee-company for the asst. yr. 1977-78 ended on 31st Dec., 1976. THE recognition was thus granted within the previous year under consideration. THE company made certain annual contributions to the said superannuation fund which pertained to the liability of the company with reference to the salary paid by the assessee-company to its employees during the previous year under consideration. THEre is no dispute between the Department and the assessee with regard to the allowance of such annual contributions. In addition to such contributions of Rs. 3,87,187 computed at the rate of twenty-five per cent of each 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 in respect of that employee for each such year(sic). THE assessee was originally under the impression that the allowance of initial contribution was governed, apart from r. 88 of the IT Rules, 1962, by Notification No. SO 3433, dt. 21st Oct., 1965, which was issued by the CBDT under the powers vested in it by cl. (iv) of sub-s. (1) of s. 36 of the IT Act, 1961. THE said notification reads as follows : `In exercise of the powers conferred by cl. (iv) of sub-s. (1) of s. 36 of the IT Act, 1961 (43 of 1963), the CBDT 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 not) in respect of that employee for each such year. 2. Subject to condition 1, eighty per cent of the amount actually paid by the employer by way of contribution during any previous year shall be the deductible allowance. 3. One-fifth such deductible allowance shall be allowed in the assessment year relating to the previous year in which the amount was actually paid and the balance of the deductible allowance shall be allowed in equal instalments for each of the four immediately succeeding assessment years'. THE computation of Rs. 61,950 was made on the basis of the aforesaid Notification." Against the said order passed by the ITO, the assessee preferred an appeal before the CIT(A) and the CIT(A) after examining assessee's contentions granted relief to the assessee. Against the decision of the CIT(A), the Department came up in appeal to the Tribunal. The Tribunal after examining the provisions of cl. (iv) of sub-s. (1) of s. 36, the Rules and the notification, already referred to, observed, inter alia, as follows : "The statute, the Rules and the notification thus appear to us to be in complete harmony with each other and the limitation of allowing eighty per cent of the initial contribution only and its spreading over a period of five years does not appear to be militating against any of the provisions of either the statute or the rules referred to above. The notification and the Rules supplement each other and have to be read together in a harmonious manner." 4. The first question is now concluded by the decision of this Court delivered on 5th Feb., 1990 in IT Ref. No. 113 of 1985 in the case of CIT vs. Union Carbide Ltd. Following the aforesaid decision, this question of law is answered in the negative and in favour of the assessee.
(3.) WITH regard to the second question, the facts are as follows : "The assessee owned a flat in respect of which it was allowed depreciation at Rs. 13,840 during the aforesaid previous year. The said flat was given by the company to one of its employees, Mr. K. Mubayi. The said flat had been purchased by the company only two and a half months before the end of the previous year and so Mr. Mubayi could occupy it only for the said duration. The IAC took into account the depreciation at Rs. 13,840 while computing the limit of allowances to be allowed to the company in terms of sub-s. (5) of s. 40A. The company, however, claimed that depreciation for 2-1/2 months only should be taken into account for purposes of sub-s. (5) of s. 40A and not the entire depreciation for the entire year. The aforesaid plea of the company was not accepted by the CIT(A). The Tribunal also did not accept it. After referring to the provisions of sub-cl. (ii) of cl. (a) of sub-s. (5) of s. 40A, the Tribunal observed, inter alia, as follows : `It will be patent from the aforesaid reading of the language of sub-cl. (ii) to cl. (a) of sub-s. (5) of s. 40A that what is to be disallowed is not the proportionate allowance but the allowance to which the assessee is entitled to and which has been allowed to it in the normal course. Whatever be its quantum it would be disallowed. There is no provision for relating it to the period of the user of the asset in question by the employee. The contention of the assessee is, therefore, without any substance whatsoever and we accordingly reject it'." The relevant provisions of s. 40A(5) so far as it is relevant for the purpose of deciding this question is reproduced below : "(a) Where the assessee ............... (i) ................. (ii) ........... is entitled to any allowance in respect of any assets of the assessee used by an employee either wholly or partly for his own purpose or benefit, then, subject to the provisions of cl. (b), so much of such ........ allowance as in excess of the limit specified in respect thereof in cl. (c) shall not be allowed as a deduction. ;