PRINCIPAL COMMISSIONER OF INCOME TAX JAIPUR-II vs. M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT AND INVESTMENT CORPORATION LTD

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ITA/244/2018HC RajasthanRJHC02068786201816 September 2019Author: S. RAVINDRA BHAT,PRAKASH GUPTA2 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the contribution made to the State Renewal Fund is an admissible deduction under Section 37(1) of the Income Tax Act, 1961. The reasoning is based on a previous decision in Pr. Commissioner of Income Tax v. M/s. Rajasthan Renewable Energy Corporation Ltd. [ITA No.10/2018 decided on 13.03.2018], which was followed. The Tribunal affirmed that the renewal fund was set up by the State Government to provide a safety net for workers affected by restrictions in State Public Enterprises. A finding of fact was recorded that the contribution was solely for the welfare and benefit of the employees. The Tribunal reasoned that it is for the assessee to decide on business expediency for expenditures, and such expenditure for employee welfare is allowable. The existence of a legal obligation further supported the allowability. The ratio is that expenditures incurred for employee welfare and benefit, especially when there's a legal obligation or business expediency, are deductible under Section 37(1). The appeal was dismissed.

What were the facts?

The appeal was filed by the Principal Commissioner of Income Tax, Jaipur-II, against M/s Rajasthan State Industrial Development And Investment Corporation Ltd. The assessment year(s) are not explicitly stated in the judgment. The order or action under challenge is the admissibility of deduction under Section 37(1) of the Income Tax Act, 1961. The dispute pertains to contributions made to the State Renewal Funds. The procedural history involves the assessee claiming the deduction, which was likely allowed by the lower authorities, leading to the present appeal by the revenue.

What were the issues?

1. Whether the contribution made to the State Renewal Funds is an admissible deduction under Section 37(1) of the Income Tax Act, 1961? The assessee contends that the expenditure incurred on the State Renewal Fund is for the welfare and benefit of employees, and therefore, it is an allowable business expenditure under Section 37(1). The assessee also argues that there was a legal obligation to make such contributions. The revenue's contention is not explicitly recorded in the judgment, but their appeal implies they dispute the allowability of this deduction.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No.244/2018 Principal Commissioner Of Income Tax Jaipur-II, Jaipur ----Appellant Versus M/s Rajasthan State Industrial Development And Investment Corporation Ltd, Udhyog Bhawan, Tilak Nagar, Jaipur ----Respondent For Appellant(s) : Mr. Prateek Kedawat, Mr. Hitesh Mishra and Mr. Ankit Papli on behalf of Mr. R.B. Mathur For Respondent(s) : HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE PRAKASH GUPTA

Judgment 16/09/2019

1.

The sole question for consideration is the admissibility of deduction under Section 37(1) of the Income Tax Act, 1961?

2.

It is not disputed that the issue – with respect to contribution made to the State Removal Funds is covered by the decision in Pr. Commissioner of Income Tax v. M/s. Rajasthan Renewable Energy Corporation Ltd. [ITA No.10/2018 decided on 13.03.2018]. The court had hen followed Principal Commissioner of Income-Tax V. Rajasthan State Seed Corporation Ltd [(2016) 386 ITR 267 (Raj) and held, as under:- “Insofar as the expenditure incurred on State Renewal Fund is concerned, said expenditure also goes to show that the renewal fund was set up by the State Government and was created with the object of providing a safety net for the workers likely to be effect by restricting in the State Public Enterprise and that a finding of fact has been recorded that the contribution made to the State Renewal fund is solely for the purposes of the welfare and benefit of the employee. In our view, it is for the assessee to decide whether any (2 of 2) [ITA-244/2018] expenditure should be incurred in the course of business and expenditure of this nature being for business expediency is certainly allowable deduction under Section37 (1), of the Act. In our view any normal employee expenditure for the welfare and benefit of employees is allowable expenditure under Section 37 (1), the Tribunal has come to a finding of fact that it was a legal obligation of the respondent- assessee towards contribution of the said amount to the State Renewal fund and there being a legal obligation as well in our view the Tribunal has come to a correct conclusion.” Following the same reasoning it is held that the expenditure i.e. contribution towards State Renewal Fund, is covered and allowable under Section 37 of the Act.”

3.

For the above reasons, this appeal too is dismissed. (PRAKASH GUPTA),J (S. RAVINDRA BHAT),CJ Anil Goyal/47

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