Maharashtra State Ware Housing Corporstion, Pune V. Dy. CIT Cir- 11[2] Pune, Pune

ITA 301/PUN/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4348 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 13-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S C SARANGI
• Assessee Lawyers: R G NAHAR
• Keywords: Business expenditure
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI R.K. PANDA, ACCOUNTANT MEMBER. ITA.NO.301/PN/2012 (ASSESSMENT YEAR 2007-08) MAHARASTRA STATE WAREHOUSING CORPORATION, C/O. SHAH KHANDELWAL JAIN & ASSOCIATES, C.A. LEVEL 3, BUSINESS BAY, PLOT NO.84, WELLESLEY ROAD, NEAR RTO, PUNE 411001 .. APPELLANT PAN NO. AABCM 3988M VS. DCIT, CIRCLE-11(2), PUNE. .. RESPONDENT ASSESSEE BY : SRI R.G. NAHAR REVENUE BY : SRI S.C. SARANGI DATE OF HEARING : 06-05-2013 DATE OF PRONOUNCEMENT : 14-05-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 02-09-2011 OF THE CIT(A)-I, PUNE RELATING TO ASSESS MENT YEAR 2006-07. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE READS AS UNDER : ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS OF LAW, IT BE HELD THAT THE DISALLOWANCE OF PAYMENT MADE TO KARMACHARI WELFARE FUND OF RS. 18,61,700/- U/S.40A(9) OF THE INCOME TAX ACT IS NOT IN ACCORDANCE WITH THE FACTS PREVAILING IN THE CASE. THE DISALLOWANCE SO MADE BE DELETED. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE COMPANY IS AN UNDERTAKING OF GOVERNMENT OF MAHARASTRA ESTABLISHED FOR PROVIDING WAREHOUSING FACILITIES. THE ASSESSEE HAS CONTRIBUT ED A SUM OF RS.18,61,700/- TOWARDS MSWC KARMACHARI WELFARE FUND AND CLAIMED THE SAME AS BUSINESS EXPENDITURE. THE ASSESSING OFFICE R FOLLOWING HIS ORDER FOR A.Y. 2003-04 TO 2005-06 DISALLOWED THE CLAIM OF THE ASSESSEE ON THE 2 GROUND THAT THE DEDUCTION FOR SUCH CONTRIBUTION IS PROHIBITED BY SECTION 40A(9) OF THE INCOME TAX ACT. IN APPEAL THE LD. CI T(A) FOLLOWING HIS ORDERS FOR EARLIER ORDERS UPHELD THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US. 4. AFTER HEARING BOTH THE SIDES WE FIND THE TRIBUNA L IN ASSESSEES OWN CASE VIDE CONSOLIDATED ORDER DATED 23-08-2011 FOR A .Y. 2003-04 TO 2005-06 IN ITA NO.382/PN/2007, ITA 794/PN/2007 AND ITA NO.1 372/PN/2007 HAS ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING AS UND ER : 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. A PERUSAL OF SECTION 40A(9), WHICH HAS BEEN EXTRACTED BY US ELSEWHERE IN THE ORDER BRINGS OUT THAT IT SEEKS TO DISALLOW SUMS PAID BY THE ASSESSEE AS AN E MPLOYER TO THE ENTITIES PRESCRIBED THEREIN. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE OF RS 16,77,170/- BY WAY O F CONTRIBUTION TO THE KARMACHARI WELFARE FUND, AS AN EMPLOYER, AND THEREF ORE, ITS DEDUCTIBILITY IS GOVERNED BY THE PROVISIONS OF SECTION 40A(9) OF THE ACT. THE DISALLOWANCE ENVISAGED IN SECTION 40A(9) OF THE ACT IS SUBJECT T O CERTAIN EXCEPTIONS. AS PER THE SAID EXCEPTIONS, NO DISALLOWANCE WOULD BE MADE WHER E SUCH SUM IS PAID: (I) FOR THE PURPOSE AND TO THE EXTENT PROVIDED UNDER CLAUSE S (IV) OR (V) OF SECTION 36(1) OF THE ACT; OR, (II) AS REQUIRED BY OR UNDER ANY OT HER LAW FOR THE TIME BEING IN FORCE. THE CLAIM OF THE ASSESSEE IS THAT THE CONTR IBUTION TO THE KARMACHARI WELFARE FUND IN QUESTION IS COVERED BY THE SECOND E XCEPTION PROVIDED IN SECTION 40A(9) OF THE ACT, AS IT HAS BEEN PAID AS MANDATED BY LAW. 10. IN ORDER TO TEST THE EFFICACY OF THE ASSESSEES PLEA, THE MOOT QUESTION TO BE ADDRESSED IS AS TO WHETHER THE REGULATIONS IN TERMS OF WHICH THE PAYMENT HAS BEEN MADE BY THE ASSESSEE, CARRY THE FORCE OF LAW O R NOT. IN THIS CONNECTION, WE MAY REFER TO THE JUDGMENT OF THE HONBLE SUPREME CO URT IN THE CASE OF U P WAREHOUSING CORPORATION (SUPRA) RELIED UPON BY THE APPELLANT BEFORE US. THE STATUS OF THE ENTITY BEFORE THE HONBLE SUPREME COU RT WAS ANALOGOUS TO THAT OF THE APPELLANT BEFORE US. AS HAS BEEN OBSERVED EARLI ER, THE APPELLANT IS A CORPORATION ESTABLISHED BY THE STATE GOVERNMENT IN EXERCISE OF THE POWERS CONFERRED BY SUB-SECTIONS (1) & (3) OF SECTION 28 O F THE AGRICULTURAL PRODUCE (DEVELOPMENT & WAREHOUSING) CORPORATION ACT, 1956 ( 28 OF 1956), WHICH WAS SUBSEQUENTLY REPLACED BY WAREHOUSING CORPORATION AC T, 1962 (58 OF 1962). THE APPELLANT IS A STATUTORY BODY FULLY CONTROLLED AND MANAGED BY THE GOVERNMENT. THE ENTITY BEFORE THE HONBLE SUPREME COURT WAS ALS O A SIMILARLY ESTABLISHED CORPORATION, BEING A STATUTORY BODY WHOLLY CONTROLL ED AND MANAGED BY THE STATE GOVERNMENT OF U.P. THE HONBLE SUPREME COURT REFERR ED TO ITS EARLIER DECISION IN THE CASE OF SUKHDEV SINGH (SUPRA) AND ADDRESSED THE QUESTION AS TO WHETHER THE REGULATIONS OF SUCH A STATUTORY CORPORATION, PR OVIDING, INTER ALIA, FOR THE TERMS AND CONDITIONS OF EMPLOYMENT AND SERVICES OF THEIR EMPLOYEES CARRY A FORCE OF LAW OR NOT. ANOTHER ALLIED QUESTION WAS A S TO WHETHER SUCH STATUTORY CORPORATIONS ARE STATE WITHIN THE MEANING OF ARTI CLE 12 OF THE CONSTITUTION. NEVERTHELESS THE PERTINENT QUESTION WAS WHETHER THE REGULATIONS PROVIDING FOR THE TERMS AND CONDITIONS OF EMPLOYMENT AND CONDITIO NS OF SERVICE HAVE THE FORCE OF LAW OR NOT? IN THIS CONNECTION, THE FOLLOWING PO RTION OF THE JUDGMENT OF THE HONBLE SUPREME COURT IS WORTHY OF NOTICE: 3 THE STATUTORY BODIES IN THAT CASE WERE :OIL AND NA TURAL GAS COMMISSION, INDUSTRIAL FINANCE CORPORATION AND LIFE INSURANCE CORPORATION. ALL THE THREE BODIES WERE CREATED UNDE R SEPARATE STATUTES ENACTED BY THE CENTRAL LEGISLATURE. IT WAS CLEAR FR OM THE OIL AND NATURAL GAS COMMISSION ACT, 1954, THAT THE COMMISSION CREAT ED BY IT, ACTS AS AN AGENCY OF THE CENTRAL GOVERNMENT. SIMILARLY, BY VI RTUE OF THE INDUSTRIAL FINANCE CORPORATION ACT, 1948, THE FINANCE CORPORAT ION IS UNDER THE CONTROL AND MANAGEMENT OF THE CENTRAL GOVERNMENT. T HE LIFE INSURANCE CORPORATION IS SIMILARLY OWNED AND MANAGED BY THE G OVERNMENT AND CAN BE DISSOLVED ONLY BY THE GOVERNMENT IN VIEW OF THE PROVISIONS OF THE LIFE INSURANCE ACT, 1956. ALL THE THREE STATUTES CONSTIT UTION THE THREE STATUTORY CORPORATIONS ENABLED THEM TO MAKE REGULATIONS WHICH PRO0VIDE, INTER ALIA, FOR THE TERMS AND CONDITIONS OF EMPLOYMENT AN D SERVICES OF THEIR EMPLOYEES. QUESTIONS AROSE, (I) WHETHER THE REGULAT IONS HAVE THE FORCE OF LAW, AND (II) WHETHER THE STATUTORY CORPORATIONS AR E STATE WITHIN THE MEANING OF ARTICLE 12 OF THE CONSTITUTION? RAY, C.J ., SPEAKING FOR HIMSELF AND CHANDRACHUD AND GUPTA, JJ., HELD THAT THE REGUL ATIONS FRAMED BY THESE STATUTORY BODIES FOR THE PURPOSE OF DEFINING THE DUTIES, CONDUCT AND CONDITIONS OF ITS EMPLOYEES HAVE THE FORCE OF LAW. THE FORM AND CONTENT OF THE CONTRACT WITH A PARTICULAR EMPLOYEE IS PRESCRIP TIVE AND STATUTORY. THE NOTABLE FEATURE IS THAT THESE STATUTORY BODIES HAVE NO FREE HAND IN FRAMING THE CONDITIONS AND TERMS OF SERVICE OF THEI R EMPLOYEES. THEY ARE BOUND TO APPLY THE TERMS AND CONDITIONS AS LAID DOW N IN THE REGULATIONS. THESE REGULATIONS ARE NOT ONLY BINDING ON THE AUTHO RITY BUT ALSO ON THE PUBLIC. THEY GIVE THE EMPLOYEES A STATUTORY STATUS AND IMPOSE OBLIGATIONS ON THE STATUTORY AUTHORITIES, WHO CANNOT DEVIATE FR OM THE CONDITIONS OF SERVICE. 11. THE HONBLE SUPREME COURT HELD THAT THE REGULAT IONS FRAMED BY THE CORPORATIONS, BEING FRAMED UNDER THE STATUTORY PROV ISIONS WOULD HAVE THE FORCE OF LAW. THE HONBLE SUPREME COURT FURTHER WENT ON T O HOLD THAT THERE WAS NO DISTINCTION ON PRINCIPLE BETWEEN A PERSON DIRECTLY UNDER THE EMPLOYMENT OF THE GOVERNMENT AND A PERSON UNDER THE EMPLOYMENT OF AN AGENCY OR INSTRUMENTALITY OF THE GOVERNMENT OR A CORPORATION, SET UP UNDER A STATUTE OR INCORPORATED BUT WHOLLY OWNED BY THE GOVERNMENT. 12. IN THE BACKGROUND OF THE LEGAL POSITION EXPLAIN ED BY THE HONBLE SUPREME COURT, IN OUR VIEW, THE SERVICE REGULATIONS FRAMED BY THE APPELLANT CORPORATION FOR THE TERMS AND CONDITIONS OF EMPLOYMENT AND SERV ICES OF THEIR EMPLOYEES CARRY A STATUTORY FORCE. IN THIS CONTEXT, WE HAVE PERUSED THE MAHARASHTRA STATE STAFF WAREHOUSING CORPORATION (STAFF) SERVICE REGULATIONS AND FIND THAT THE SAME HAVE BEEN FRAMED WITH THE PREVIOUS SANCTION OF THE GOVERNMENT OF THE MAHARASHTRA IN EXERCISE OF THE POWERS CONFERRED BY SECTION 42 OF THE WAREHOUSING CORPORATION ACT, 1962 (58 OF 1962). THE REFORE, THE IMPUGNED CONTRIBUTION MADE BY THE APPELLANT AS AN EMPLOYER T OWARDS THE KARMACHARI WELFARE FUND FALLS WITHIN THE EXPRESSION AS REQUI RED BY OR UNDER ANY OTHER LAW FOR THE PURPOSES OF SECTION 40A(9) OF THE ACT. AS A CONSEQUENCE, SUCH AN AMOUNT IS NOT DISALLOWABLE IN TERMS OF SECTION 40A( 9) OF THE ACT. 5. SINCE THE ASSESSING OFFICER AND CIT(A) HAVE DEN IED THE CLAIM OF ASSESSEE U/S.40A(9) ON THE BASIS OF ORDERS FOR EARL IER YEARS IN THE CASE OF THE ASSESSEE AND SINCE THE TRIBUNAL HAS ALLOWED THE CLA IM OF THE ASSESSEE, 4 THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BR OUGHT TO OUR NOTICE WE SET-ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE. GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN ON THIS THE 14 TH DAY OF MAY 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER SATISH PUNE, DATED THE 14TH MAY 2013. COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. THE DR B BENCH, PUNE. 6. GUARD FILE BY ORDER // TRUE COPY // PRIVATE SECRETARY, INCOME TAX APPELLATE T RIBUNAL, PUNE.