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Goodyear India Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1984)7ITD778(Delhi)
AppellantGoodyear India Ltd.
Respondentincome-tax Officer
Excerpt:
.....(i) that the commissioner (appeals) erred on facts and in law to hold that only 80 per cent of the initial contribution made by the assessee to the management staff pension fund is allowable as deduction and not the whole of the actual contribution made during the previous year relevant to the assessment year under appeal ; and (ii) that the commissioner (appeals) erred on facts and in law in not allowing expenses incurred by the assessee on the issue of bonus shares.2. as regards the first issue, viz., allowance of initial contribution made by the assessee to management staff pension fund, the material facts are that the assessee-company started superannuation fund in january 1970 which was vested in trust created by trust deed and superannuation fund since stands approved by the.....
Judgment:
1. The appeal is by the assessee, a public limited company. The assessment year involved is 1974-75 and the previous year ended with calendar year 1973. The assessment in the case of the assessee has been framed under Section 143(3) read with Section 144B of the Income-tax Act, 1961 ('the Act') and the grievance of the assessee are two-fold, viz. : (i) that the Commissioner (Appeals) erred on facts and in law to hold that only 80 per cent of the initial contribution made by the assessee to the management staff pension fund is allowable as deduction and not the whole of the actual contribution made during the previous year relevant to the assessment year under appeal ; and (ii) that the Commissioner (Appeals) erred on facts and in law in not allowing expenses incurred by the assessee on the issue of bonus shares.

2. As regards the first issue, viz., allowance of initial contribution made by the assessee to management staff pension fund, the material facts are that the assessee-company started superannuation fund in January 1970 which was vested in trust created by trust deed and superannuation fund since stands approved by the Commissioner vide order dated 17-12-1971 but made effective from 1-1-1970. During the previous year relevant to the assessment year under appeal, the assessee made initial contribution of Rs. 2,93,009 to the said fund but the ITO disallowed the claim on the ground that the initial contribution is not allowable. The Commissioner (Appeals) held that under Section 36(1)(iv) of the Act read with Rule 88 of the Income-tax Rules, 1962 ('the Rules') the initial contribution towards superannuation fund is allowable subject to limits as may be prescribed and subject to condition as may be specified by the CBDT and, accordingly, he held that in view of Notification No. SO. 3433, dated 21-10-1965 [see Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn., p.

206] the assessee was entitled to deduction of 80 per cent of the initial contribution made by the assessee towards the said fund subject to condition that the said 80 per cent of the total initial contribution was allowable during five assessment years and in that view of the matter, the total initial contribution being Rs. 2,93,009, 80 per cent of the said contribution worked out to Rs. 2,34,407 and the Commissioner (Appeals) allowed relief to the assessee at Rs. 46,881 being one-fifth of Rs. 2,34,407. He further held that the assessee would be at liberty to claim similar relief in the following four assessment years, namely, the assessment years 1975-76, 1976-77, 1977-78 and 1978-79.

3. The assessee is, as yet, aggrieved, hence, this appeal and we are seized of the matter.

4. We have heard the learned authorised representatives of the parties at length. We have also perused very carefully the orders of the lower authorities and the paper book since placed on our file, for and on behalf of the assessee, which, inter alia, contains, 'copy of trust deed and rules of superannuation fund', 'copy of approval of superannuation fund by the Commissioner which is dated 17-12-1971', 'details showing initial contribu tion made to the fund on account of each member-employee of the assessee' and 'copy of certificate of the company regarding initial contribution'. The assessee has also placed on our file extracts from the order of the Special Bench of the Tribunal, Bombay, made in the case of Amar Dye-Chem. Ltd. v. ITO [IT Appeal No. 3643 (Bom.) of 1974-75, dated 1-12-1977, since reported in [1983] 3 SOT 384]. For the assessee, strong reliance has been placed on statutory Rules 87 and 88 of the rules and on Section 36(1)(iv) and it has been contended that the total initial contribution made by the assessee during previous year relevant to the assessment year under appeal are allowable and the reliance by the Commissioner (Appeals) on notification issued by the CBDT, viz., Notification No. SO 3433, dated 21-10-1965, was unwarranted since according to the assessee, the certificate issued by the CBDT is Contrary to statutory rules as also the provisions of law, viz., Section 36(1)(zv).

5. For the revenue, strong reliance has been placed on the order of the Commissioner (Appeals), the reasoning contained therein and the notification referred to by the Commissioner (Appeals) in the impugned order. The learned departmental representative has also contended that before the Tribunal, the assessee could not challenge the validity of the notification issued either under the provisions of the Act or under the statutory rules, viz., the Income-tax Rules.

6. The case of the assessee is that Notification No. SO 3433, dated 21-10-1965, issued by the CBDT is contrary to statutory Rules 87 and 88, as also is contrary to specific provisions of law, viz., Section 36(1)(iv), but we have authoritative pronouncement of the Hon'ble Supreme Court of India on the point which finds mention in para 17 of the order of the Tribunal made in the case of Amar Dye-Chem. Ltd. (supra). As per para 17 of the order of the Tribunal, their Lordships of the Hon'ble Supreme Court of India in the case of Kanpur Vanaspati Stores v. CST AIR 1973 SC 2373 held as under : Further it is now settled by the decision of this Court that none can challenge the validity of a provision of an Act or rule made thereunder or even a notification issued either under the Act or under the rules made, before the authorities constituted under the Act. (p. 394) 7. Notification No. SO 3433, dated 21-10-1965, which is agitated upon by the assessee before us, reads as under : 142. Conditions specified by the Board under which relief on special lump sum contributions and/or initial contributions to be regulated- Section 36(1)(iv) In exercise of the powers conferred by Clause (iv) of Sub-section (1) of Section 36, the Central Board of Direct Taxes hereby specifies the following conditions for the deduction of contributions, not being 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 the fund, namely : 1. The total amount of contribution that shall be taken into account for the purposes of this notification shall not exceed twenty-five per cent of the employee's salary for each year of his past service with the employer as reduced by the employer's contribution, if any, to any provident fund (whether recognised or not) in respect of that employee for each such year.

2. Subject to condition 1, eighty per cent of the amount actually paid by the employer by way of contribution during any previous year shall be the deductible allowance.

3. One-fifth of such deductible allowance shall be allowed in the assessment year relating to the previous year in which the amount was actually paid and the balance of the deductible allowance shall be allowed in equal instalments for each of the four immediately succeeding assessment years.

(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- (iv) 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 may 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 annual contributions of fixed amounts or annual contributions fixed on some definite basis by the reference to the income chargeable under the head 'Salaries' or to the contributions or to the number of members of the fund ; 9. From the Notification No. SO 3433, dated 21-10-1965, reproduced as above, it follows that the said notification has been issued under enabling provisions of Section 36(1)(iv), since the said section provides that any sum paid by the assessee as an employer by way of contribution towards an approved superannuation fund is allowable as deduction while computing the income of the assessee under Section 28 of the Act subject to such limit as may be prescribed for the purpose of approving the superannuation fund and subject to such condition as the Board may think fit to specify in cases where the contributions are not in the nature of annual contribution 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 number of members of the fund.

10. Since, Notification No. SO 3433, dated 21-10-1965, has been issued by the Board under Section 36(1)(iv), in view of the ratio laid down by their Lordships of the Hon'ble Supreme Court of India in the case of Kanpur Vanaspati Stores (supra), the said notification cannot be challenged before this forum, viz., the Tribunal and in that view of the matter, this contention of the assessee stands rejected.

11. Again, statutory Rule 88, which deals with topics 'Initial contributions', reads as under : Subject to any condition which the Board may think fit to specify under Clause (iv) of Sub-section (1) of Section 36, the amount to be allowed as a deduction on account of an initial contribution which an employer may make in respect of the past services of an employee admitted to the benefits of a fund shall not exceed twenty-five per cent of the employee's salary for each year of his past service with the employer as reduced by the employer's contribution, if any, to any provident fund (whether recognised or not) in respect of that employee for each such year.

12. The above rule starts with the words, 'Subject to any condition which the Board may think fit to specify under Clause (iv) of Sub-section (1) of Section 36...'. Since there is a notification by the Board which has been issued under the enabling provisions of Section 36(1)(iv) read with statutory Rule 88 and since the said notification cannot be challenged before this forum, all the contentions ' of the assessee stand rejected and in that view of the matter, the impugned order of the Commissioner (Appeals) on the above issue is upheld since no interference is warranted either on facts or in law.

13. The next issue relates to the claim of expenses made by the assessee in lieu of amounts expended in connection with the issue of bonus shares. The details of the said expenses which account for a total of Rs. 1,04,487 is to the following effect : Details of bonus shares issue expenses charged directly to share premium account in balance-sheet :Cheque Date Name and address Amount DetailsNo.CV 9861 27-11-73 N.B. Dutt & Co., 2,372.00 Cost of envelopes.

CalcuttaCV 9919 28-11-72 Andrew Yule & 32,424.00 Postage for sending Co. Ltd., Calcutta share certificate.CV 9920 28-11-72 Hooghly Printing 3,953.00 Allotment register- Co. Ltd., Calcutta cum-post journalCV 10124 5-12-73 Andrew Yule & 56,410.00 Handling charges of Co. Ltd., Calcutta bonus share issue.CV 10256 11-12-73 J.K. Business 9,096.00 Cost of share certi- Machines Ltd., 2, ficate.CV 84 7-1-74 Hooghly Printing 232.00 Block making and Co. Ltd., Calcutta numbering work.

14. The Commissioner (Appeals) rejected the contentions raised on behalf of the assessee that the bonus shares were issued for the purpose of business. He reasoned that any expenditure in connection with the raising of the capital has to be treated as capital expenditure and cannot be allowed as deduction. He further reasoned that expenses were not in the nature of revenue expenditure.

15. Before us, for the assessee, it has been contended that the expenses are in the nature of revenue one and are allowable as deduction de hors the treatment given by the assessee in his books of account, viz., entry in the books of account. The assessee has further contended that the treatment of an entry is not conclusive and cannot be considered for making of allowance or disallowance or deduction since according to the assessee, the expenditure expended and subject-matter of appeal were in the nature of revenue one, having been incurred for the purpose of the assessee's business. The assessee further reasoned that there has been rationalisation of balance-sheet, further that there has been realignment of assets and no fresh capital has been raised. For the assessee, strong reliance has been placed on the ratio of the decision of the Hon'ble Madras High Court in the case of CIT v. Kisenchand Chellaram (India) (P.) Ltd. [1981] 130 ITR 385 and further that of the Hon'ble Calcutta High Court in the case of CIT v.Asiatic Oxygen & Acetylene Co. Ltd. [1981] 132 ITR 506. For the revenue, it has been contended that the expenditure incurred on 'share premium account', viz., issue of bonus shares has been debited in 'share premium account' and is not shown in the profit and loss account but is shown in the balance sheet reducing the reserves and in that view of the matter, pages 6 and 9 of the printed balance sheet of the assessee make it clear that the assessee has itself treated the expenses as not in the nature of revenue. The learned departmental representative has further contended that the issue of bonus shares is in no way connected with the carrying on of the business of the assessee, since there has been a change in the capital structure of the assessee-company and the expenses could not be allowed as deduction while computing the income of the assessee for the assessment year under appeal because the claim for deduction must strictly be within the ambit of the provisions of the Act, viz., Sections 28 to 44D of the Act and the assessee has not made out any case for that.

16. We, having given our due and careful consideration to the facts of the case as also to the submissions made before us and having derived the maximum benefit from the ratio of the decision relied upon by the learned counsel of the assessee, are of the opinion that on peculiar circumstances of the facts of the assessee's case, the claim is not allowable. Since, neither there has been any revaluation to improve the credit-worthiness of the assessee so as to obtain loans nor there has been a raise of capital within the meaning of the ratio laid down by their Lordships of the Hon'ble Madras High Court, since in the case of the assessee, the assessee has issued bonus shares out of its reserves, hence, it is pure and simple realignment of the capital structure of the assessee-company and the very details of expenses incurred does not inspire the confidence that these are in the nature of revenue one. The assessee has issued bonus shares to its existing shareholders simply to wipe up the reserves, more so, the assessee has debited in its books of account the said expenses in their 'share premium account' and these have been charged to accounts in the balance sheet and not in the profit and loss account and admittedly so, since it depicts the correct method of accountancy. The balance-sheet of the assessee is audited by renounced chartered accountant and the realignment of the capital structure of the company can neither give rise to increase in capital, since there is no new raising of capital by way of issuance of shares, nor it can be said that the expenses are connected with the business of the assessee, since the expenses relate to entries inter se capital structure of the assessee-company, hence, in that view of the matter, the claim of the assessee for deduction in lieu of expenditure incurred in connection with issue of bonus share is held to be in the nature of capital expenditure, with the resultant effect that this issue also stands decided against the assessee.

17. In the result, the appeal by the assessee fails and stands dismissed.


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