M. O. Hassan Kuthoos Maricar (P.) … vs Income-Tax Officer. on 23 November, 1989

Madras High Court
M. O. Hassan Kuthoos Maricar (P.) … vs Income-Tax Officer. on 23 November, 1989
Equivalent citations: 1990 33 ITD 493 Mad


1. These two appeals by the assessee relate to the assessment years 1980-81 and 1981-82. The assessee contests the disallowance of the companys contribution towards provident fund of three directors of Rs. 3,600 in the assessment year 1980-81 and Rs. 12,400 in the assessment year 1981-82. The contributions made were in respect of three of the directors of the assessee-company, viz., S/Shri M. H. Udhuman, M. H. Iqbal and M. H. Farook. The ground on which the ITO made the disallowance was that the contribution made was in respect of employees drawing salary in excess of Rs. 1,000 per month and, therefore, the Employees Provident Fund Act, 1952 did not apply to them and hence such deduction could not be allowed. This view was also upheld by the CIT (A).

2. Before us, the learned counsel for the assessee took me through the Scheme of the E.P.F Act. We have also heard the learned departmental representative, who opposed the claim for deduction based on the reasons which weighed with the ITO. Admittedly, each of the directors was getting a salary in excess of Rs. 1,000 per month. Admittedly also the establishment was one to which the E.P.F Act applied. Section 5 of the E. P. F. Act empowered the Central Govt. to frame a Scheme for the working of the Act. It is seen that under paragraph 2(f) of the Scheme of the E. P. F. Act, the term excluded employee means an employee, who (at the material time) was drawing pay exceeding Rs. 1,000 p. m. Paragraph 26 deals with the membership of the Fund and sub-clauses (1) to (5) of paragraph 26 deal with those employees and their rights and liabilities vis-a-vis the fund. Paragraph 26(6) states under :

“Notwithstanding anything contained in this paragraph, an office not below the rank of Assistant Provident Fund Commissioner may, on the join to request in writing, of any employee of a factory or other establishment to which this Scheme applies and his employer, enrol such employee as a member or allow him to contribute on more than two thousand and five hundred rupees of his pay per month if he is already a member of the Fund and thereupon such employee shall be entitled to the benefits and shall be subject to the conditions of the Fund, provided that the employer gives an undertaking in writing that he shall pay the administrative charges payable and comply with all statutory provisions in respect of such employee.”

Therefore, an officer not below the rank of Assistant Provident-Fund Commissioner, may, on the joint request in writing, of any employee of a factory or other establishment to which this Scheme applies and his employer, enrol such employee as a member. The criteria of pay being less than Rs. 1,000 does not apply to such employees who are taken as members by the exercise of discretion by the Assistant Provident Fund Commissioner. Correspondence has been filed with us to show that regular contributions were being made on the basis of joint declaration submitted in respect of the Managing Director. On 2-7-1979 by a letter sent by the Accounts Officer, office of the Regional Commissioner, Employees Provident Fund, there was a defect pointed out of which rectification was requested for. In this letter it was stated as under :

The Joint Declaration executed by M. O. H. Iqbal one of the Managing Director of the Company should be countersigned by another Director of the company who is authorised to sign all Employees Provident Fund and Family Pension Fund documents. On receipt of the Declaration necessary action will be taken by this office to accept the same. While furnishing Joint Declaration three copies of specimen signature of the authorised persons to sign Employees Provident Fund and Family pension Fund Documents may be forwarded.”

It is clear, therefore, that the Regional Provident Fund Commissioners office had stated the declaration could be accepted on rectification of the defects. The defect was rectified by the assessees letter 20th July, 79. Hence the three directors were employees who could contribute to the Employees Provident Fund. The contributions made to the Employees Provident Fund are contributions made to a recognised provident Fund in view of sec. 9 of the E. P. F. Act, which read as under :

“9. Fund to be recognised under Act 11 of 1922. – For the purposes of the Indian Income-tax Act, 1922, the Fund shall be deemed to be a recognised provident fund within the meaning of Chapter IX-A of that Act.

Provided that noting contained in the said Chapter shall operate to render ineffective any provision of the Scheme (under which the Fund is established) which is repugnant to any of the provisions of that Chapter or the rules made thereunder.”

read with the definition of Recognised Provident Fund in sec. 2(38) of the I. T. Act, 1961, which read as under :

“2(38) recognised provident fund means a provident fund which has been and continues to be recognised by the Chief Commissioner or Commissioner in accordance with the 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).”

Therefore, all the requisite criteria are satisfied. The deductions claimed have to be allowed and we direct accordingly.

3. There is one other ground urged for the assessment year 1980-81, viz., that certain disallowance made invoking the provisions of sec. 37(3A) should be allowed. However, this ground was not pressed at the hearing.

4. For the assessment year 1981-82 there was a similar ground. It was stated that the question of disallowance of Rs. 6,107 u/s 37(3A) did not arise because the provisions itself stood omitted with effect from 1-4-1981. This is correct. The learned departmental representative pointed out that a rectification has already been made by the ITO. We would only direct that such a rectification is necessary because the CIT (A) had confirmed this disallowance, which I direct will now stand modified to conform to the rectification made.

5. In the result, the appeal for the first assessment year is allowed in part and the appeal for the second assessment year is allowed.

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