Commissioner Of Income Tax vs. Mp.Electricity Board

The facts of the case as borne out from the memo of appeal filed by the Revenue are that the respondent-assessee is a Company deriving its income from generation and distribution of electricity. The assessee filed return of income for the assessment year 1994-95 on 30.11.1994 declaring loss of Rs.26,43,49,539/- and thereafter furnished revised return on 26.03.1996 declaring loss of Rs.2,96,37,62,026/-. The assessee had claimed expenditure amounting to Rs.1.50 Crore paid towards contribution to National HVDC Project, New Delhi. The Assessing Officer denied the said expenditure and made addition of Rs.1.50 Crore. The Assessing Officer also disallowed the claim of Rs.24,25,05,585/- made by the assessee as deduction on account of provident fund. The assessment order dated 31.3.1997 (Annexure A-1) passed under Section 143(3) of the Act was assailed by the respondent-assessee before the Commissioner of Income-Tax (Appeals-I), Jabalpur [hereinafter called as “the CIT(A)]. The CIT(A) vide order 05.01.2005 (Annexure A-2) deleted both the additions made by the Assessing Officer and allowed the appeal to that extent. Against the order of the CIT(A), the Revenue went in appeal before learned Tribunal, which was dismissed vide impugned order dated 22.09.2006 (Annexure A-3). Hence, the present appeal.

Learned counsel for the Revenue submitted that the contribution to National HVDC Project would not fall within the ambit of Section 37(1) of the Act as it was capital in nature and not incurred in connection with day to ( 3 ) day running of the business and therefore, the CIT(A) and the learned Tribunal have committed an error in deleting the addition of Rs.1.50 Crore on account of contribution to the said fund. It was then submitted that further deletion of addition of an amount of Rs.24,25,05,585/- accepted by the CIT(A) and the Tribunal is per se illegal inasmuch as the said amount was collected by the assessee towards contribution to the provident fund. As the assessee was covered under the Employees Provident Fund Act, 1952 but the assessee did not deposit the same with the P.F. Trust within the due date as provided under Section 36(1)(va) of the Act, therefore, the said deduction was not admissible. For these reasons only the Assessing Officer had denied the deductions claimed by the assessee and rightly so but the learned Authorities below without any cogent reasons deleted the said additions. Hence, it was prayed that the appeal be allowed and the order of the Assessing Officer be restored.

On the other hand, learned counsel for the assessee argued in support of the impugned order. It was urged that the claim of deduction on account of payment towards contribution to National HVDC Project, New Delhi was made on the ground that it was paid to an organization approved by the Government of India vide order of releasing of funds to the assessee. It was argued that under such circumstances, the expenditure was revenue in nature and had been rightly allowed by the CIT(A) and the Tribunal. It was further contended that the provident fund subscription was also rightly allowed as the assessee-Department has its own provident fund rules and regulations under which it is deposited with the PF Trust and since there is no specific date of payment but an arrangement is made that payments are made regularly on ad hoc basis and the amount remaining unpaid, if any, is treated ( 4 ) as invested with the assessee and carries interest as per rules. He invited our attention to Clause 11 of the PF Regulations, which have been taken note of by the learned Tribunal in ITA No.79 to 81/Jab/2013 (Asst. Commissioner of Income Tax 2(1) Jabalpur v. M.P. Electricity Board) while dismissing the appeal of the Revenue by order dated 06.07.2015 in identical facts and circumstances, which reads as under:- “All money contributed to the fund by the Board or by a subscriber or accruing by way of interest or otherwise to such fund shall remain invested with the Board or in such securities as the Trustees may from time to time decide. If the amount is left with and merged in the fund of the Board, the Board shall credit the fund with interest on such amount computed on monthly balance once in a year at same rate as they pay to the Govt. or their loans or 4 p.c. whichever is higher.”

The Assessing Officer disallowed the deduction claimed by the assessee on account of contribution to National HVDC Project on the ground that the same was not directly connected with the business as envisaged under Section 37(1) of the Act but was by way of donation and/or ( 5 ) of capital nature. Section 37(1) of the Act permits deduction of any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purposes of the business or profession in computing the income chargeable under the head “profits and gains of business or profession”. On the basis of the internal note submitted by the assessee, the Assessing Officer having noted in the order that the said project was evolved to develop indigenous technology in the country and various departments of Government of India had extended grant-in-aid to the said project and so as the assessee department and the Chairman, APSEB were committed to contribute Rs.15 Crore each, we find that there was material before the Assessing Officer to adjudge the admissibility of the said deduction in favour of the assessee particularly when the said step taken by the assessee was in accordance with Section 24 of the Electricity (Supply) Act, 1948 (in short “the Electricity Act”), which was applicable to assessee. Section 24 of the said Act enabled the Electricity Board to subscribe to associations constituted for the purpose conducive to development of electricity and promotion of common interest of persons engaged in generation, distribution and supply of electricity. The provision was also considered by the Assessing Officer but without dealing with the same, he held the said subscription to be of capital nature and/or by way of donation. In our considered view, the expenses/grant-in-aid was in conformity with Section 24 of the Electricity Act, as stated above which required the assessee to subscribe to the associations constituted for the purpose conducive to development of electricity. Therefore, the expenditure of Rs.1.5 Crore in question was to be allowed under Section 37(1) of the Act ( 6 ) as the same was incurred in ordinary course of the business of the assessee and as a part of obligation to its consumers to develop electricity. Further, the contribution was made as per the order of the Government of India and it was wholly, necessarily and exclusively for the purpose of business. It was not a voluntary contribution/donation but was given on specific directions of the Government of India. In this view of the matter, we do not find any error in the finding recorded by the learned Tribunal in this regard. The relevant extract of the order passed by the learned Tribunal reads as under:- “5.3 ……….. In the absence of any contrary material brought on record by the revenue against the finding of the Ld. CIT(A) and keeping in view that the above amount was paid to an organization approved by Government of India vide order of releasing of funds appearing at pages 1- 3 of the assessee’s paper book, we are inclined to uphold the finding of the Ld. CIT(A) in deleting the addition of Rs.1.50 Crore and accordingly, the ground taken by the revenue is rejected.”

Before adverting to the second question with regard to allowing the deletion of addition of Rs.24,25,05,585/- of provident fund which was not paid on due date under Section 36(1)(va) of the Act, it would be apposite to refer to the relevant statutory provision which reads, thus:- “Other deductions

(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- *** *** *** (va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date. Explanation. - For the purposes of this clause, “due date” means the date by which the assessee is required as an employer to credit an employee’s contribution to the employee’s account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise;”

There is no doubt with regard to the mandate of the aforesaid provision. However, it is seen that the assessee had got exemption from depositing the money with the Provident Fund Commissioner and instead, was allowed to deposit the same with the P.F. Trust and as per Regulation 11 of the PF Regulations which are applicable to the respondent, there is no specific date for deposit of the provident fund by the Board. In M.P.E.B.’s case (supra), which has been relied upon by learned counsel for the assessee, similar question raised by the Revenue was answered against them on the basis of order dated 30.12.2010 passed by the Assessing Officer accepting the same principle in respect of assessment year 2003-2004. Thus, there is nothing to take any different view in the present case.

In view of the foregoing reasons in addition to the findings recorded by the learned Tribunal coupled with the view taken by the Division Bench of this Court in M.P.E.B.’s case (supra), we do not find any case is made out in favour of the Revenue. Learned counsel for the appellant failed to point out any illegality or perversity in the impugned order warranting interference by this court in exercise of jurisdiction under Section 260-A of the Act. Consequently, the present appeal fails and is hereby dismissed. (AJAY KUMAR MITTAL) (VIJAY KUMAR SHUKLA) CHIEF JUSTICE JUDGE s/