TAMILNADU STATE APEX CO-OPERATIVE BANK EMPLOYEES PROVIDENT FUND,CHENNAI vs. ITO, CHENNAI

आदेश /O R D E R

Per Sanjay Arora, AM:

3 (AY 2013-14) Tamil Nadu State Apex Co-operative Bank Employees Provident Fund v. ITO Para 2.1 of the assessment order contains the findings by the Assessing Officer (AO), and reads as under: ‘The assessee has failed to comply with the provisions of sub-rule 5 of Rule 78 and Sec. 2(38) of the Income Tax Act, where the recognition of the Provident Fund should be continued by the Principal Commissioner or Commissioner of Income Tax. The assessee has chosen to apply for “re- recognition” only when pointed out during the scrutiny proceedings for the AY 2013-14. Also the concept of "re-recognition" as claimed by assessee in its application is not there in Income Tax Act and Rules. The assessee has to comply with the relevant provisions of Income-tax Act 1961 and Rules 1962 mentioned above to avail the exemption u/s. 10(25). As the recognition of the assessee is in question for the A.Y. 2013-14, the claim of exemption u/s 10(25) is rejected.’ The operating part of the impugned order reads as under:(at pgs.18- 19) ‘As per the statute provision Sec. 2(38) the recognised provident fund means provident fund which has been and continues to be a recognised by the Pr. Chief Commissioner or Chief Commissioner or Pr. Commissioner or Commissioner in accordance with Rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees Provident Fund Act, 1952(19 of 1952). Thus, it becomes abundantly clear that the assessee has failed to comply with the provisions of sub-rule (5) of 78 IT Rules, 1962 and Sec. 2(38) of the IT Act, 1961. The assessee's claim that assessee has applied Re-recognition before the Pr. Commissioner is not covered by the statute provision as RE-recognition word is not the in the IT Rules, 1962. Therefore, it is proved beyond doubt that assessee is not fulfilling the conditions to claim exemption u/s 10(25) of the Act. It was contended before the AO by the assessee that assessee has exemption certificate u/s. 17(1)(a) of the Provident Fund regulation. However, when the AO asks such proof to be furnished before him, the assessee has merely furnished compliance Audit Report of the Provident Fund dt.25.10.2015 and has not furnished the exemption certificate u/s 17(1) (a) of the Provident Fund Regulation Act, which is issued by Provident Fund authority. Accordingly, I uphold the action of the AO disallowing sum of Rs.12,00,070/- claimed by the assessee as exempt u/s 10(25) of the Act for excess of income over expenditure. The ground of appeal therefore is dismissed.’ Aggrieved, the assessee is in second appeal.

4 (AY 2013-14) Tamil Nadu State Apex Co-operative Bank Employees Provident Fund v. ITO The assessee trust, formed, as stated, prior to 1944 as ‘Madras Apex Co- operative Bank Ltd. Employees’ Provident Fund’, applied for and was accorded recognition u/s. 58B(1) of the Income Tax Act, 1922 w.e.f. 30.09.1944 (paper- book pg.1). A change in its name to its current name, effected subsequently, was duly approved by the Commissioner of Income Tax, Madras vide his letter No. 202(3)74 dated 26.11.1974 (PB pg.3). The assessee is thus clearly a recognized provident fund under the Act. In fact, this aspect is not in dispute, and the Revenue’s claim is that it is, however, no longer so, i.e., cannot continue to be a recognized fund as the conditions for the same are not satisfied. Further, the employer bank being an establishment to which the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (‘EPF & MP Act’ hereinafter) apply, it stands granted exemption u/s. 17(1)(a) of the said Act. This fact stands confirmed by the Regional Provident Fund Commissioner-II (Exem) vide of his letter No.RO/CHN/‘C’/Exem/TN/4102/2016 dated 29.11.2016 in response to the assessee’s letter dated 07.11.2016, referred to therein (PB pg. 4). The operating part of the said letter reads as under: ‘As per the available records, the establishment M/s. Tamil Nadu State Apex Co-operative Bank Ltd. has been granted exemption under sec. 17(1)(a) of the EPF and MP Act 1952, with effect from 01.02.1966 vide Order No.GO.Ms.4814 dated 15.12.1966 and 212 dated 29.7.1991.’ The employer-bank has been regularly filing annual statistical information on the functioning of the exempted establishment under the said Act. It’s accounts and records, as well as of the employees’ provident fund maintained by it, the assessee, have also been subject to compliance audit by the designated audit team under the provisions of the said Act from time to time. The compliance audit report dated 25.03.2015 for financial year 2013-14 is on record (PB pgs. 79-84). Para I(8) of the said report also mentions the employer-bank to be an exempt establishment u/s. 17(1)(a) of the said Act. This report was furnished both before the assessing and the first appellate authority, while the letter dated 29.11.2016 (supra) was produced only before the ld. CIT(A) in the appellate 5 (AY 2013-14) Tamil Nadu State Apex Co-operative Bank Employees Provident Fund v. ITO proceedings. This is in view of the AO expressing reservation in respect of sec. 17(1)(a) exemption in his order. The ld. CIT(A) ought to have admitted the same and sought its verification; rather, in view of the doubts expressed by the AO, ought to have called for some evidence in the matter from the assessee, as the said letter, himself, exercising his power u/r. 46A(4) of the Rules, and verify or cause to verify the same, so as to satisfy himself in the matter. He does neither; rather, does not even record the furnishing of the said evidence before him and, on the contrary, endorses the AO’s findings in the matter expressing, as afore- stated, doubt with regard to s. 17(a) exemption under the EPF & MP Act to the employer-bank. I find no reason to doubt the same and, accordingly, the employer-bank is to be regarded as an establishment to which the provisions of EPF & MP Act apply and, further, as exempt u/s.17(1)(a) of the said Act, i.e., at least up to 29.11.2016. Proceeding, next, to examine the satisfaction or otherwise of the conditions of s. 2(38) of the Act, it cannot be denied that the assessee is a recognized provident fund under the Act. This is, as afore-said, in view of, firstly, its recognition under the 1922 Act and, further, of having obtained the approval of the competent authority under the Act for a change in its name, so that the only question is if it can be continued to be regarded as so. Rule 3 of Part A of Schedule IV to the Act is titled ‘According and withdrawal of recognition’. The first proviso to r. 3(1) states that where recognition has been accorded to any fund on or before 31st day of March, 2006 and such fund does not satisfy the condition set out in clause (ea) of r. 4, the recognition of such fund shall be withdrawn if such fund does not satisfy, on or before the 31st day of March, 2014, the conditions set out in the said clause and any other conditions which the Board may, by rules, specify in this behalf. Correspondingly, r. 77(5) of the Rules provides, inter alia, that a fund which has been granted recognition on or before 31st March 2006, shall make a fresh application in Form 40C through the AO referred to in sub r.(2) (of r. 77). The assessee fund being admittedly not a 6 (AY 2013-14) Tamil Nadu State Apex Co-operative Bank Employees Provident Fund v. ITO fund of an establishment in respect of which a notification has been issued by the Central Government u/s. 16(2) of the EPF & MP Act, so as to be excluded from the operation of the first proviso to r. 3(1) (supra) per the second proviso thereto, made a fresh application in Form 40C on 10.02.2016 (PB pgs. 92-95). This in fact is noted both by the AO (at para 2.1 of his order) as well as in the impugned order, terming the same as a ‘re-recognition’, a concept alien to the Act and the rules there-under, and disregarding it on that basis. The same is completely incomprehensible. Firstly, merely because the assessee has submitted the application in Form 40C, which it is in fact obliged to u/r. 77(5), does not by itself imply that the conditions of r. 4(ea) of Sch. IV(A) to the Act are not satisfied by the concerned establishment. The application in Form 40C is not on the assessee’s own violation but only in pursuance to r. 77(5) of the Rules brought on the statute book by the IT (First Amendment) Rules, 2007 w.e.f. 15.01.2007. The same, as shall be apparent, has been provided, apart from regularizing and bringing uniformity in applications for recognition of provident funds, with the prime purpose of ensuring the satisfaction of the conditions set out in r. 4 (ea) of Schedule IV(A), which reads as under: ‘Conditions to be satisfied by recognised provident funds.