Bhaskar Bhattacharya, J. - (1.) THIS appeal under Section 260A of the Income Tax Act, 1961 is at the instance of an assessee and is directed against an order dated 25th March, 1999, passed by the Income Tax Appellate Tribunal, D Bench, Calcutta, in ITA No.312 (cal) of 1995, relating to Assessment Year 1989-1990.
(2.) THIS appeal was admitted on the following substantial questions of law formulated by the Division Bench. i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in not allowing the sum of Rs.1,43,35,000/- which represents the liability on account of pension on the basis of the resolution of the Board payable to the employee till their death? ii) Whether, on the facts and in the circumstances of the case, the liability on account of pension on the basis of the provisions made should be allowed for the period till the death of the employees or all liabilities should be limited for the period of accounting year relevant to this assessment year? The following facts are not in dispute: a) The assessee claimed deduction of Rs.1,43,35,000/- on account of unfunded actuarial liability for pension in respect of certain categories of employees. There is no dispute that the assessee maintained its account on mercantile basis. It is also admitted that out of the aforesaid amount claimed as actuarial liability of pension under the aforesaid Head, the amount actually paid was to the extent of Rs.23,04,228/- only and the same was included under the Head as Staff Welfare Expenses. b) The Assessing Authority disallowed the aforesaid claim of deduction by passing the following order: The assessee has debited a sum of Rs.15,50,000 in respect of Death Pension which is included under the head Staff Welfare Expenses. It has been held by the CIT, WB-II in his order under Section 263 of the Income Tax Act for Asstt. Years 1981-82 to 1983- 84 that the amount of death pension is not admissible. On the same ground the claim made by the assessee in this year is also being disallowed. c) On appeal, the Commissioner of Income Tax (Appeal) observed that on the basis of the resolution of the Board of Directors of the assessee-company certain payments on account of pension were to be made on actuarial basis the assessee worked out the liability to be Rs.1,43,35,000/-, however, the actual liability for that year amounted to Rs.23,04,228/- only which was paid. Thus the aforesaid claim was refused. d) Before the learned Tribunal below it was contended on behalf of the assessee that consequent upon the decision of the company to grant pension to the executives of the company, to the persons who, retired prior to introduction of the pension scheme, and were not in receipt of any pension, the liability had arisen and crystalised during the year under the reference and since the company was following the mercantile system of accounting, and as the liability in respect of such pension arose and crystallized during the said year, the company was entitled to claim deduction of such pension liability determined on actuarial basis in the relevant previous year in which such liability arose. e) The learned Tribunal below, however, overruled the aforesaid claim of the assessee and dismissed the appeal. Being dissatisfied, the assessee has come up with the present appeal. Dr. Pal, the learned senior counsel appearing on behalf of the assessee, has strenuously contended before us that his client having maintained its account on mercantile basis, is entitled to the deduction of the entire amount which accrued during the year as liability for the purpose of the said pension notwithstanding the fact that his client had actually paid a lesser amount. In support of such contention, Dr. Pal has relied upon the following decisions: 1. Bharat Earth Movers vs. Commissioner of Income-Tax, reported in 245 ITR 428 (SC); 2. Commissioner of Income-Tax, West Bengal-II vs. National Insurance Co. of India, reported in 127 ITR 54 (Cal); 3. Calcutta Co. Ltd. vs. Commissioner of Income-Tax, West Bengal reported in (1959) 37 ITR 1 (SC). 4. Commissioner of Income tax vs. Bharat Petroleum Corporation Ltd reported in (2001) 116 Taxman 775(Bom). 5.Keshav Mills Ltd. vs. Commissioner of Income tax reported in (1953) 23 ITR 230 (SC). 6. E. D. Seassoon and Company Ltd and others vs. Commissioner of Income tax reported in (1954) 26 ITR 27 (SC). 7. Metal Box Company of India Ltd vs. Their workmen reported in (1969) 73 ITR 53 (SC). 8. CIT vs. Turner Morrison and Co. Ltd. reported in (1978) 114 ITR 629 (CAL).
(3.) MR. Agarwal, the learned advocate appearing on behalf of the Revenue, has, however, opposed the aforesaid contention of Dr. Pal and has contended that in view of the provisions contained in sub-section (9) of Section 40A of the Income-tax Act, 1961 inserted by the Finance Act, 1984 with retrospective effect from April1, 1980, only such deduction should be allowed which exists for the purpose and to the extent provided by or under Clause (iv) or Clause (v) of subsection (1) of Section 36 of the Act or as required by or under any other law for the time being in force. According to MR. Agarwal, a perusal of the Clauses (iv) and (v) of Section 36(1) referred to in sub-section (9) of Section 40A of the Act would show that the deductions that are to be allowed to an employer are contributions towards a recognized provident fund or an approved superannuation fund or by way of contribution towards approved gratuity fund created by the employer for the exclusive benefit of his employee under an irrevocable trust. Mr. Agarwal contends that in the case before us, the pension scheme created by the resolution of the Board of Directors is not an approved superannuation fund and as such, the same is not entitled to deduction. In support of such contention, Mr. Agarwal relies upon a Division Bench decision of the Andhra Pradesh High Court in the case of Raasi Cement Ltd. vs. Commissioner of Income-tax (No.1), reported in 275 ITR page 579. In reply to the aforesaid submission, Dr. Pal contended that Section 40A (9) of the Act applies only to the cases covered by Section 36(1) (iv) or (v), but the scheme in question not having fallen within those provisions, his client is entitled to the benefit of the residuary Section 37 of the Act. Therefore, the question that boils down in the present case is whether an employer maintaining account on the basis of mercantile system is entitled to deduction on actuarial basis for discharging any liability on account of unapproved pension scheme.;