COMMISSIONER OF INCOME TAX vs. V.O.CHIDAMBARNAR PORT TRUST

1 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 19.06.2019 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM and THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Appeal Nos.372, 374 and 375 of 2019 and C.M.P.Nos.12548 and 12582 of 2019 Commissioner of Income Tax, Circle 1, Tuticorin. .. Appellant in all Appeals -vs- M/s.V.O.Chidambaranar Port Trust, (Formerly known as M/s.Tuticorin Port Trust) Administrative Office, Harbour Estate, Tuticorin. PAN: AAALT0206D .. Respondent in all Appeals Appeals under Section 260A of the Income-tax Act, 1961 against the common order dated 22.02.2018 on the file of the Income Tax Appellate Tribunal 'B' Bench, Chennai in I.T.A.No.1830/Mds/2016, for the assessment year 2012-13; I.T.A.No.1714/Mds/2017, for the assessment year 2010-11; and I.T.A.No.580/Mds/2016, for the assessment year 2009-10 respectively. For Appellant : Mr.M.Swaminathan, (In all Appeals) Senior Standing Counsel For Respondent : Mr.N.Devanathan (In all Appeals) ****** http://www.judis.nic.in 2 COMMON JUDGMENT (Delivered by T.S.Sivagnanam, J.) These appeals, by the Revenue filed under Section 260A of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), are directed against the common order dated 22.02.2018, passed by the Income Tax Appellate Tribunal 'B' Bench, Chennai (for brevity, “the Tribunal”), in I.T.A.No.1830/Mds/2016, for the assessment year 2012- 13; I.T.A.No.1714/Mds/2017, for the assessment year 2010-11; and I.T.A.No.580/Mds/2016, for the assessment year 2009-10 respectively. 2.The Revenue has raised the following three substantial questions of law in all the appeals:- “(i) Whether the ITAT is correct in law in holding that explanation 6 to section 43(6) is applicable for the assessment year 2008-09 instead of the assessment year 2002-03? (ii) Whether the ITAT is correct in law in holding that the assessee need not compute the depreciation as per section 32(1) of the Income Tax Act for the assessment years 2002-03 to 2008-09 when assessee is assessed as trust and doing business, whereas it has to compute depreciation as per section 32(1) as mentioned in section 11(4)? http://www.judis.nic.in 3 (iii) Whether the ITAT is correct in law in holding that the expenditure made u/s 37(1) is allowable even after allowing expenditure u/s 36(1)(iv) and (v), whereas it is mentioned in section 37(1) that only the expenditure other than those mentioned in Section 30 to 36 can be allowed?” 3.We have heard Mr.M.Swaminathan, learned Senior Standing Counsel for the appellant/Revenue; and Mr.N.Devanathan, learned counsel for the respondent/assessee, viz., V.O.Chidambaranar Port Trust, formerly known as Tuticorin Port Trust. 4.Mr.M.Swaminathan, learned Senior Standing Counsel fairly submits that so far as the first and second substantial questions of law are concerned, they pertain to excess claim of depreciation, which was considered by the Tribunal and in paragraph 12 of the impugned order, the Tribunal holds that there is no clarity as to how the computation of depreciation has been made and it opined that the quantum of depreciation allowable to the assessee for the impugned assessment years requires a re-visit by the Assessing Officer. Accordingly, the finding was set aside and the matter has been remanded back to the Assessing Officer for consideration afresh in accordance with law. 5.In our considered view, the first and second substantial http://www.judis.nic.in 4 questions of law would not arise for consideration, since the matter has been remanded to the Tribunal for fresh consideration. Therefore, the first and second substantial questions of law are not answered and are left open. 6.The third substantial question of law is pertaining to whether the expenditure incurred by the respondent/assessee is allowable under Section 37(1) of the Act, even after allowing expenditure under Section 36(1)(iv) and (v) of the Act. 7.It is the submission of Mr.M.Swaminathan that Section 36(1) of the Act states that deductions provided for in sub-Clauses (i) to (xvi) under sub-Section (1) of Section 36 shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28 of the Act. It is submitted that sub-Clause (iv) deals with any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of http://www.judis.nic.in 5 annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head “Salaries” or to the contributions or to the number of members of the fund. 8.Attention to sub-Clause (v) of Section 36(1) of the Act was also invited, which states that any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust. 9.The Revenue does not dispute the deduction under Section 36(1)(iv) and (v) of the Act, which was made by the assessee in the assessment years under consideration. To be noted that this arises only for the assessment years 2010-11 and 2012-13. 10.The case of the Revenue is that apart from the claim for deduction under Section 36(1)(iv) and (v), the assessee has also claimed deduction under Section 37(1) of the Act and by referring to Section 37(1) of the Act, Mr.M.Swaminathan, would submit that any expenditure not being expenditure of the nature described in Sections http://www.judis.nic.in 6 30 to 36 and Section 80VV and not being in the nature of a capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “profit and gains of business or profession”. 11.It is the submission of the learned counsel that deduction has already been claimed under Section 36(1)(iv) and (v) of the Act and therefore, the question of claiming deduction under Section 37(1) does not arise and the Assessing Officer was justified in not allowing the same. This issue was considered by the Commissioner of Income-tax (Appeals)-I, Madurai (for brevity, “the CIT(A)”), in the appeals filed by the assessee challenging the assessment orders. The CIT(A) took note of all the written submissions made by the assessee. For better appreciation, we refer to the finding recorded by the CIT(A) in its order dated 24.03.2016 in I.T.A.No.110/2015-16 for the assessment year 2012-13. 12.The assessee submitted that they are making pension payments to its retired employees directly into their bank accounts after deducting tax at source, wherever applicable as per Tuticorin Port http://www.judis.nic.in 7 Trust Employees Retirement Regulations, 1979 as approved and notified by the Government of India, and these payments are accounted as pension payments and the same represents regular business expenditure of the assessee, as there is contractual and statutory obligation to pay the pension to the retired employees and the annual contribution to the newly created recognized superannuation fund and gratuity fund were utilized for paying commuted pension for employees, who retired during the financial year and also for making payments towards gratuity at the time of retirement of employees. It is contended that the above facts were explained to the Assessing Officer during the course of assessment proceedings for earlier years and the Assessing Officer accepted the same, but no addition was made. It is contended that the assessee is under contractual and statutory obligation to pay monthly pension to the retired employees which was regularly allowed as deduction in the earlier years as the same was incurred for the purpose of business. 13.It is further contended that the contribution to the approved superannuation fund and gratuity fund is allowable as deduction under the specific provisions of the Act and the same were utilized only for paying commutation pension and gratuity to the retired employees. It http://www.judis.nic.in 8 is further contended that the assessee did not claim the same amount as deduction twice and the claim is in accordance with the provisions of the Act and merely because the assessee is claiming deduction in respect of approved superannuation fund and gratuity fund, the Assessing Officer was not justified in rejecting the claim of pension payments which represents the actual monthly pension payments made to the retired employees, which is subject to deduction of tax at source, wherever applicable. 14.The above submission was considered by the CIT(A) and it was held that the assessee claimed Rs.20 crores towards contribution to pension and gratuity fund. This was under Section 36(1)(iv) and (v) of the Act. Apart from that, the assessee claimed deduction of a sum of Rs.23,28,13,876/- towards pension payments. The Assessing Officer was of the view that when deduction is allowed towards contribution to recognised superannuation funds, the deduction claimed in respect of actual payment could not be allowed. The CIT(A) did not agree with the said finding and in our view, rightly held that the assessee has actually made monthly pension payments to its retired employees to fulfil the statutory obligation and therefore, the same could not be denied deduction. Further, it held that the http://www.judis.nic.in 9 contribution to the approved funds is claimed as deduction by virtue of specific provisions of the Act subject to fulfilment of certain conditions and further the above funds were utilised only for making payments towards commuted pension and gratuity and not regular monthly pension. Therefore, the disallowance made by the Assessing Officer was set aside. 15.The Revenue carried the matter on appeal to the Tribunal. It was contended before the Tribunal that the CIT(A) erred in deleting the disallowance of Rs.23,28,13,876/- (AY 2012-13) made on account of claim of expenditure paid directly to its retired employees under Section 37 because, it has not been routed through the recognised post trust pension fund. This contention was considered by the Tribunal and was rejected. The finding rendered by the Tribunal is contained in paragraph 16. 16.We approve the said finding of the Tribunal for the following reasons. Admittedly, the Revenue has not disputed the fact that there is an approved gratuity fund created by the employer, viz., the respondent/assessee and the payment made towards such fund to the expenditure of Rs.20 crore was allowed as a deduction. The deduction of the sum of Rs.23.28 crores is sought to be denied on the ground that it was not routed through the pension fund. This contention http://www.judis.nic.in 10 raised by the Revenue is liable to be rejected for the simple reason that the Government of India has approved and notified an Employees Retirement Regulations termed as the “Tuticorin Port Trust Employees Regulations, 1979”. This Regulations having been approved and notified by the Government of India as statutory force and the respondent/assessee is bound by the terms and conditions contained in the Regulations, any infraction or violation will result in various other civil consequences. Therefore, the nature of deduction claimed by the assessee in respect of the payments made in terms of the statutory regulation would fall within the general deductions under Section 37 of the Act and cannot be brought under Section 36(1)(iv) and (v) of the Act. Therefore, the reasons assigned by the CIT(A) and the Tribunal are perfectly in order. Furthermore, the payments effected in terms of the Retirement Regulations, 1979 have been strictly made to the retired employees' account after deduction of tax at source wherever applicable. 17.Furthermore, in respect of the claim for deduction on similar grounds made by the assessee for the earlier assessment years, the same has been granted and these contentions advanced by the assessee before the CIT(A) and the Tribunal were not disputed, neither http://www.judis.nic.in 11 there is any material placed before us to show that the assessee was factually wrong in raising such a contention. Therefore, we hold that the assessee having been granted similar benefit for the earlier years, the same cannot be denied for the subsequent years, especially when, the nature of payment is in the same fashion in terms of a statutory regulation. 18.Thus, for the above reasons, the Revenue has not made out any ground to interfere with the order passed by the Tribunal. 19.In the result, the appeals filed by the Revenue fail and are dismissed; and the first and second substantial questions of law are left open because, the matter has been remanded to the Assessing Officer for fresh consideration; and the third substantial question of law is answered against the Revenue. No costs. (T.S.S., J.) (V.B.S., J.) 19.06.2019 Index : Yes/No Speaking/Non-Speaking Order abr T.S.Sivagnanam, J. and V.Bhavani Subbaroyan, J. http://www.judis.nic.in 12 (abr) To 1.The Income Tax Appellate Tribunal 'B' Bench, Chennai. 2.The Deputy Commissioner of Income-tax, Circle-I, Tuticorin. 3.The Commissioner of Income Tax (Appeals)-1, Madurai. T.C.A.Nos.372, 374 and 375 of 2019 19.06.2019 http://www.judis.nic.in