C.I.T.PATIALA vs. M/S PUNJAB FINICIAL CORPN.

ITR/113/1990HC Punjab & HaryanaPHHC01021539199012 March 2007Author: MR. JUSTICE M.M. KUMAR,MR. JUSTICE RAJESH BINDAL6 pages
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What did the High Court hold?

The High Court held that for questions 1 and 2, the revenue had conceded that these issues were covered against them by Supreme Court judgments, specifically UCO Bank Vs. Commissioner of Income-tax (1999) 237 ITR 889 and Commissioner of Income-tax Vs. Andhra Pradesh State Financial Corporation (1998) 233 I.T.R. 195. Therefore, both questions were answered against the revenue and in favour of the assessee. Regarding question 3, the Court affirmed the Tribunal's decision to delete the disallowance of Rs. 29,402. The reasoning was based on the principle that Section 37 of the Income Tax Act, 1961, is a general provision for deductions and should be construed liberally. The Court cited Commissioner of Income-Tax, Kerala Vs. High Land Produce Co. Ltd. (1976) 102 ITR 803 (affirmed by the Supreme Court in (1986) 158 ITR 419) and Khimji Visram and sons (Gujarat) Private Limited Vs. Commissioner of Income-Tax (1994) 209 ITR 993, which established that Section 37 covers expenditures wholly and exclusively for business purposes, not of a capital or personal nature, even if not specifically enumerated in Sections 30 to 36. Since the provident fund contribution was not disputed as being for business purposes, not capital, and not personal, and Section 36(1)(iv) did not expressly debar it, the deduction was permissible under Section 37. Thus, question 3 was also answered against the revenue and in favour of the assessee. The reference was disposed of.

What were the facts?

This case involves a reference to the High Court of Punjab and Haryana concerning an Income Tax Appellate Tribunal (ITAT) order dated February 5, 1983, for the assessment year 1977-78. The assessee is M/s Punjab Financial Corporation Ltd., Chandigarh, and the petitioner is the Commissioner of Income-Tax, Patiala. The ITAT had passed an order in I.T.A. No. 49 of 1981. The High Court was asked to opine on three questions of law. For the first two questions, the revenue conceded that the issues were covered against them by Supreme Court judgments. For the third question, the Assessing Officer disallowed a deduction of Rs. 29,402 representing the assessee's contribution to the Provident Fund Act, 1925, deeming it impermissible as it was not a recognized provident fund, thus violating Section 36(1)(iv) of the Income Tax Act, 1961. The CIT(A) and the Tribunal allowed the deduction.

What were the issues?

The High Court was asked to decide the following questions of law: 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing the assessee's claim regarding interest due on sticky loans? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that deduction u/s 36(1)(viii) of I.T.Act, 1961, should be allowed @ 40% of the total income before making deduction u/s 36(1)(viii) itself? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in deleting the disallowance of Rs.29402/- representing contribution made by the assessee corporation towards the Provident Fund Act, 1925? Contentions: For questions 1 and 2, the revenue conceded that these issues were covered against them by the Supreme Court judgments in UCO Bank Vs. Commissioner of Income-tax (1999) 237 ITR 889 and Commissioner of Income-tax Vs. Andhra Pradesh State Financial Corporation (1998) 233 I.T.R. 195. No specific arguments were recorded for the assessee on these points, as the revenue's concession made them moot. For question 3, the revenue's primary argument, as reflected in the Assessing Officer's action, was that the contribution to the Provident Fund Act, 1925, was not deductible under Section 36(1)(iv) because it was not a recognized provident fund. The assessee's contention, upheld by the CIT(A) and the Tribunal, was that the expenditure was wholly and exclusively for the purpose of business and not capital in nature or personal, and that Section 37 of the Act could allow such a deduction even if not specifically covered by Section 36(1)(iv).

Which sections of the Income-tax Act were involved?

Section 36(1)(viii),Section 36(1)(iv),Section 37,Section 30,Section 31,Section 32,Section 33,Section 34,Section 35,Section 36

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I.T.R.

-1- *** `IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R.

Date of decision: 12.03.2007 The Commissioner of Income-Tax, Patiala ...Petitioner Versus M/s Punjab Financial Corporation Ltd. Chandigarh ...Respondent CORAM: HON'BLE MR.JUSTICE M.M.KUMAR HON'BLE MR.JUSTICE RAJESH BINDAL Present: Mr.Sanjiv Bansal, Advocate for the revenue. **** RAJESH BINDAL, J. Following questions of law have been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandgiarh (for short 'the Tribunal) arising out of order dated 5.2.1983 passed in I.T.A.No. 49 of 1981, in respect of the assessment year 1977-78:- “1. Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in law in allowing the assessee's claim regarding interest due on sticky loans?

2.

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that deduction u/s 36(1) (viii) of I.T.Act, 1961, should be allowed @ 40% of the total income before making deduction u/s 36 (1) (viii) itself?

3.

Whether, on the facts and in the circu

The order continues below.

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