DY. CIT vs. GUJARAT STATE CIVIL SUPPLIES CORP. LTD.

Facts

The Revenue (Dy. CIT) has appealed against an order dated 18.11.1999 passed by the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench 'A', for the assessment year 1991-92. The assessee, Gujarat State Civil Supplies Corp. Ltd., had contributed Rs. 14,00,000 to a staff benevolent fund created for the benefit of its employees. The Assessing Officer disallowed this contribution under Section 40A(9) of the Income Tax Act, a view upheld by the CIT(A). The ITAT, however, allowed the deduction, leading to the present appeal by the Revenue.

Held

The High Court held that the Tribunal was correct in allowing the deduction. The Court agreed with the Tribunal's reasoning that the contribution was made to a staff benevolent fund created for the benefit of staff and their families, and the expenditure was actually incurred on employee welfare. The Tribunal had relied on CBDT Circular No. 307 and the Madras High Court decision in Cheran Engineering Corporation Ltd. vs. CIT. The Court found that the expenditure was for genuine employee welfare activities, as evidenced by the detailed breakdown of expenses. The Court also noted that the assessee maintained complete accounts of the fund and got it audited regularly. The Court found the decisions cited by the revenue inapplicable and confirmed the Tribunal's finding of fact. The Apex Court's decision in Bharat Petroleum Corporation Ltd. was also discussed, supporting the view that Section 40A(9) may not be applicable in cases of genuine staff welfare expenses. The appeal was dismissed.

Key Issues

1. Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance of Rs. 14,00,000 made under Section 40A(9) of the Income Tax Act, being contribution to the staff benevolent fund, even though such fund was not recognised nor approved in terms of Section 2(5) and (6) of the Income Tax Act? Assessee's Contention: The expenditure was incurred for the benefit of employees, covering cultural programs, death assistance, educational assistance, gifts, honorarium, medical assistance, notebooks for children, and sports. The assessee relied on decisions in CIT vs. Bharat Petroleum Corporation Ltd., CIT vs. Travancore Cochin Chemicals Ltd., and Gujarat Poly-Acx Electronics Ltd vs. DCIT. Revenue's Contention: The Tribunal erred in deleting the disallowance under Section 40A(9). The language of the provision is unambiguous, and no external matters like circulars should be considered. The revenue relied on decisions in Yashasvi Yarn Limited vs. CIT, Sandur Manganese and Iron Ores ltd. vs. CIT, Tata Iron & Steel Co. Ltd vs. UOI, and Brooke Bond India Ltd vs. JCIT.