Income Tax Appellate Tribunal - Kolkata
Bata India Ltd. vs Deputy Commissioner Of Income-Tax on 24 September, 2002
Equivalent citations: [2003]85ITD257(KOL)
ORDER
B.R. Mittal, Judicial Member
1. to 3. [These paras are not reproduced, here as they involve minor issues.]
4. In ITA No. 329/C/1996 for the assessment year 1990-91 and in ground Nos. 1 to 5 of ITA No. 1126/C/1995 for the assessment year 1991-92,the issue involved is as to whether the sum of Rs. 38,27,480 in the assessment year 1990-91 and the sum of Rs. 28,92,311 in the assessment year 1991 -92 being the amount paid by the assessee-company to Bata Workers Sickness Benefit Society (hereinafter referred to as 'the Society') is hit by the provision of Section 40A(9) of the Income-tax Act, 1961 and as such has rightly been disallowed by the ld. CIT(A). Before we take up this issue for our consideration on merits, it is relevant to state that in the appeal filed by the Deptt. being ITA No. 99/C/1997 the Ld. CIT(A) vide his order dated 15th October, 1996 while considering the order of the A.O. dated 16th July, 1996 passed under Section 154 of the Act has held that the amount of Rs. 28,92,311 contributed by the assessee to the Society is an allowable deduction and is not hit by Section 40A(9) of the Act. The Department has disputed the said order of the Ld. CIT(A) in the above appeal before us.
In order to decide this issue the relevant facts are that the assessee is a company engaged in the business of production of sale of foot wears.
4.1 In the assessment year 1990-91,the assessee-company contributed to the Society an amount of Rs. 38,27,430 (subsequent stated Rs. 38,27,480) and in the assessment year 1991-92 an amount of Rs. 28,92,311 as an employer. During the course of assessment proceedings the assessee contended that the assessee was required to make the contribution to the Society as per standing rules. The Society was to provide medical assistance to all employees and workers of the assessee's Batanagar factory. The said Society is an unregistered body and is neither a Society registered under the provisions of the Society's Registration Act, 1860 or a Trust or a fund. The assessee contended that the Employees State Insurance Act was also not applicable to Batanagar area as the facilities provided by the Society were good, if not better than the facilities provided under the ESI Act. The assessee also contended that all employees and workers had to compulsorily become the members of the Society and its funds comprised (i.e. employees) contribution and contribution from the assessee-company. The Society also maintained a hospital having 60 beds and other essential services including operation theatre. The assessee also contended that it made the contribution as per the "standing order and rules" for and its supervisory and clerical staff. Since the contribution paid by the assessee-company was in accordance with the standing order and Rules having the force of law and in accordance with the terms and conditions of contract of employment and were in lieu of medical services and facilities available under the provision of ESI Act, the provision of Section 40A(9) of the Act is not attracted. However, the A.O. did not accept the contention of the assessee and held that the said amount contributed by the assessee-company in the assessment year 1990-91 of Rs. 38,27,480 and in the assessment year 1991-92 of Rs. 28,92,311 were not allowable under Section 40A(9) of the Act and accordingly disallowed the same.
4.2 We may mention that while computing the income for the assessment year 1991-92 the A.O. did not take into account the said disallowance and accordingly, the A O. passed an order under Section 154 of the Act dated 16th July, 1996 after giving notice to the assessee dated 23rd November, 1995, a copy of which is placed at page 33 of the paper book (filed with ITA No. 99/C/1997) and after considering the reply of the assessee filed vide letters dated 15th December, 1995 and 15th July, 1996 (copies of which are placed at pages 35 and 36 of the paper book filed with ITA No. 99/C/ 1995). We shall deal with this appeal separately after disposing of this issue in the appeals filed by the assessee for the assessment years 1990-91 and 1991-92.
4.3 Being aggrieved, the assessee filed appeals before the First Appellate Authority against the assessment orders passed by the A.O. under Section 143(3) of the Act.
5. The Ld. CIT(A) after considering the submission of the assessee, as mentioned hereinabove, confirmed the findings of the A.O. that the payments made by the assessee in the assessment years under appeal were clearly hit by the provisions of Section 40A(9) of the Act. The ld. CIT(A) held that the Society formed by the assessee was not under any law but it was in pursuance of an agreement made between the assessee company and its employees to provide medical facilities to the workers. Hence, the Society's fund did not have any statutory formation not being set up by or under any law. Hence, the assessee is in further appeals against the aforesaid orders of the Ld. CIT(A).
6. During the course of hearing of the appeals the Ld. Counsel for the assessee submitted that the Society was constituted for providing medical relief to its members in the year 1953 and referred to pages 1 to 11 of the paper book, which is a copy of the constitution of the said Society namely Bata Workers Sickness Benefit Society. The Ld. A.R. of the assessee submitted that all the employees of the assessee-company other than the managerial staff, must become and remain members of the said Society during their employment and as per clause 6 thereof the members were required to contribute to the fund of the society according to their salaries. The assessee-company was also required to pay equal contribution. The ld. A.R. of the assessee submitted that as per clause 7 thereof all the contributions received were required for maintenance of hospital and dispensaries, payment to medical staff, nurses, attendants etc. The Ld. A.R of the assessee further referred to pages 13 to 48 of the paper book, which is a copy of the collective agreement and standing orders and rules and submitted that as per the said standing order all the employees on their joining were required to join the said Society. He further referred to pages 49 to 51 of the paper book, which is a copy of the agreement entered into between the employees union and the management of the assessee-company dated 21st February, 1980 and submitted that as per the said agreement the assessee-company was required to make matching contribution to the said Society for giving medical benefit to its employees. He further referred that the said agreement was further revised in 1982 and a copy of which is placed at pages 53 to 59 of the paper book in which also the then existing system of matching contribution to the Society was to continue. The Ld. A.R of the assessee referred that the said agreement was again revised in 1986 and the same facilities were continued. He submitted that the agreement on the same line was also in force in the assessment years under appeal. The Ld. A.R. of the assessee submitted that the said agreements had the statutory force under the Industrial Dispute Act, 1947 and also the standing orders and rules were duly certified under the provisions of the Industrial Employment (Standing Orders) Act, 1946 and the standing orders had statutory force. The Ld. A.R. of the assessee submitted that the contravention of the certified standing order is liable to be punished with fine or prosecution. The ld. A.R. of the assessee further submitted that the settlement arrived at between the assessee-company and its workmen also fell in the definition of settlement under Section 2(p) of the Industrial Dispute Act, 1947 and Section 18 of the Industrial Dispute Act, 1947 provides that the settlement was arrived at would be binding on the assessee-company and its workmen and such settlement could not be unilaterally be given a go-bye by any of the parties namely the assessee-company or the workmen. He further referred to Section 29 of the Industrial Dispute Act, 1947 and submitted that it provides for penalty for breach of any terms and conditions of the settlement or for their non-implementation. The ld. A.R. of the assessee further submitted that as per Section 33C the money due and recoverable under a settlement could be recovered as an arrear of kind revenue. Thus, the liability of the assessee-company to pay the matching contribution to the Society was payable under the various settlement arrived at between the workmen and the assessee-company which have statutory force in terms of the Industrial Employment (Standing Orders) Act, 1946 and the Industrial Disputes Act, 1947. The ld. A.R. of the assessee submitted that the provision of Section 40A(9) of the I.T. Act are not attracted to the above amount contributed by the assessee to the Society as the amount was paid as was required by or under any other law for the time being in force. In support of his submission, the Ld. A.R. of the assessee also placed reliance on the following decisions :
(i) Raasi Cement Ltd. v. ITO [1993] 45 ITD 233 (Hyd.) and
(ii) General Fibre Dealers (P.) Ltd. v. Asstt. CIT [1994] 72 Taxman 163 (Cal.) (Mag.).
7. On the other hand, the Ld. D.R. justified the orders of the Ld. CIT(A). The Ld. A.R. of the assessee referred to page 5 of the paper book (for assessment year 1990-91) and submitted that as per clause 14 of the rules of the Society, the Committee of Management is the trustee of the fund. He further submitted that the Society is not a recognized fund within the meaning of Section 40A(9) of the Act and as such any contribution to any unrecognized fund is not to be allowed. The Ld. A.R. of the assessee submitted that the CBDT Circular No. 387 dated 6th July, 1984 has specifically provided that contribution to non-statutory fund w.e.f. assessment year 1980-81 is to be disallowed save and except, inter alia, where the sum is paid or contributed for the purpose and to the extent required by or under any other law. A copy of the said Circular dated 6th July, 1984 is placed on record. He further submitted that the assessee made the contribution to the society pursuant to the contractual arrangement entered into with the workers and not under the statute or pursuant to the provisions of any law. He submitted that the Ld. CIT(A) had considered the submission of the assessee made before the Tribunal and has held that the Society formed by the assessee was not under any law and as such the providing of medical facilities by the assessee to its workers were only pursuant to agreement made between the assessee-company and its employees. Therefore, it could not be said that the said payment was required to be made by the assessee by or under any other law. He further submitted that the non-applicability of ESI Act to the factory area of the assessee at Batanagar could not be a substitute for the establishment of the Society. He further submitted that the hospital facility provided by the assessee-company was not for all workers as it was confined only to the workers residing near the vicinity of Batanagar. He submitted that the orders of the authorities below be confirmed and the appeals of the assessee on this issue be dismissed.
8. We have carefully considered the orders of the authorities below and the submissions of the Ld. Representatives of the parties. We have also gone through the cases as relied on by the ld. A.R. of the assessee and the relevant provisions viz. Section 40A(9) of the Act along with the Circular No. 387 dated 6th July, 1984.
9. Section 40A(9) of the Act provides that no deduction would be allowed in respect of any sum paid by the assessee as an employer towards setting up or formation or as contribution to, any fund, trust, company, association of persons, body and individuals. Society registered under the Societies Registration Act, 1860, or other institution for any purpose, except where such sum is so paid for the purposes and to the extent provided by or under Clause (iv) or Clause (v) of Sub-section (1) of Section 36, or as required by or under any other law for the time being in force. On perusal of the section, it is clear that any payment made towards a fund, trust, institution etc. is to be disallowed unless the amount paid is towards-
(i) Recognized Provident Fund or approved superannuation fund as mentioned in Section 36(1)(vi),(
(ii) Approved Gratuity Fund as mentioned in Section 36(1)(v),
(iii) As required by or under any other law for the time being in force.
10. In this case, there is no dispute that the contribution made by the assessee was not towards a recognized fund or approved superannuation fund or approved gratuity fund. Hence, the question only is whether the payment made by the assessee to the Society is required by or under any other law for the time being in force.
11. On perusal of the constitution of the Society, namely Bata Workers Sickness Benefit Society, it is observed that all employees of the company other than the managerial staff must become its members during their employment and they were required to make the contributions as per the scale stated in clause 6 thereof. The management and control of the Society vested in a Committee of Management consisting of eight members of which four would be nominated by the assessee-company and the other four by the Union who would be employees of the assessee-company. All the monies received on account of contribution or otherwise to the fund of the society would be applied, inter alia, to meet the expenses for the maintenance and purchase of medicines, medical appliances, maintenance of hospital and dispensaries, maintenance and payment to the staff including the medical officers, nurses, attendants. The beneficiaries of the fund would be entitled to the payment in accordance with the rules. A copy of the said constitution of the Society is placed at pages 1 to 6 of the paper book. We further observe from the paper book that the said medical benefit to be provided by the assessee to its workers forms a part of the standing orders and rules. The said standing orders and rules have been duly certified under the provisions of the Industrial Employment (Standing Orders) Act, 1946. As per Section 5 of the said Act, the standing orders have statutory force and any contravention thereof is liable to be punished with fine or prosecution. It is further observed on perusal of the memorandum of settlement entered into between the assessee-company and its workmen that medical benefit is specifically provided and the said settlement were arrived at to which the Labour Commissioner and Conciliation Officer were also the party. As per Section 2(p) of the Industrial Disputes Act, 1947, it is provided that settlement means a settlement arrived at in the course of conciliation proceedings and includes a written agreement between the employer and the workmen arrived at otherwise than in the course of a conciliation proceeding and where such agreement has been signed by the parties thereto and a copy thereof has been sent to an Officer authorised in this behalf by the appropriate Government and the Conciliation Officer. As per Section 18 of the Industrial Dispute Act, a settlement arrived at by agreement between the employer and the employees otherwise than in the course of conciliation proceeding shall be binding on the parties to the agreement. Further, it is provided by Section 19 of the Industrial Dispute Act, 1947 that a settlement come into operation on such date as is agreed upon by the parties to the dispute, and if no date is agreed upon, on the date on which the Memorandum of Settlement is signed by the parties to the dispute. Section 29 of the Industrial Dispute Act provides penalty for breach of any term of any settlement which is binding on the parties the Industrial Dispute Act and the same shall be punishable with the imprisonment or with fine or both.
12. Considering the above facts, the question now is whether the contribution made by the assessee pursuant to the settlement arrived at between the assessee-company with its employees could be regarded as a fund required to be set up by or under any other law for the time being in force.
13. In the case of General Fibre Dealers (P.) Ltd. (supra), Calcutta bench of the Tribunal has held that the expenses incurred by the assessee towards labour and staff welfare by way of contribution to hospitals, which were run by the trust and the trustees were from among the employees and from the management established at its garden in accordance with the provisions of Section 10 of the Assam Plantation Act, 1951 and the rules made there under were not hit by the provisions of Section 40A(9) of the Act and as such the contribution could not be disallowed.
14. The Madras Bench of the Tribunal in the case of India Pistons Repco Ltd. v. IAC [1988] 26 ITD 413 has held that the contribution made by the assessee-company to a death relief fund constituted under a Memorandum of Settlement made with its workmen under Section 18(1) of the Industrial Dispute Act was a liability under the law and as such the same was to be allowed in spite of the provisions of Section 40A(9) of the Act, as the said fund was required to be set up under the Industrial Disputes Act and it could be regarded as a fund required to be set up by or under any other law for the time being in force.
15. Further, a similar issue arose before the Hyderabad Bench of the Tribunal in the case of Raasi Cement Ltd. (supra). In the said case, pursuant to demand from workers to set up certain funds for carrying out welfare measures for the benefit of workers of the assessee-company and in particular to assist them in time of distress, an agreement was entered into between the assessee-company represented by its Works Manager and the staff and workers' union represented by its President for setting up a welfare trust for providing medical relief having facilities, granting loans to employees, construction of hospital, schools, provision of recreation facilities and other welfare activities. Pursant thereto a trust deed was also entered into between the assessee-company and its three trustees to implement the scheme as agreed to in the agreement. It was held by the Hyderabad Bench of the Tribunal the provisions of Section 40A(9) could not be made applicable to the trust which was formed the purpose of ameliorating the conditions of workmen working in an industry. The Industrial Disputes Act also stated the employer to comply with the terms of settlement arrived at and to discharge the obligation under the agreement. In the said case, the stand of the assessee was upheld regarding its contribution to the employees' welfare trust.
16. In the case of P. Balakrishnan, CIT v. Travancore Cochin Chemicals Ltd. [2000] 243 ITR 2841 the Hon'ble Kerala High Court has held that the contribution made to a school in which children of the employees were studying was not covered under Section 40A(9) and the contribution for running the school was to be allowed as an expenditure for the smooth functioning of the business of the assessee and also an expenditure wholly and exclusively for the welfare of the employees and this is an allowable expenditure under Section 37(1) as well as Section 40A(10) of the Act.
17. In view of the above judicial decisions and considering the facts that there was a valid agreement entered into by the parties and enforceable in law against each other, it becomes legal obligation of the assessee company to make the contribution to the society and as such we are of the considered view that the contribution to the society is not hit by Section 40A(9) of the Act as such an obligation falls within the last part of the said section that the contribution was made by the assessee-company to a fund required to be set up by or under any other law for the time being in force. Besides, there is no dispute that the fund was constituted bona fidely for the welfare of its employees in the smooth running of the business and hence, the said contribution is to be allowed under Section 37(1) of the Act.
18. In view of the above, we reverse the orders of the authorities below and decide the issue in favour of the assessee by allowing the grounds of appeal for the assessment year 1990-91 in ITA No. 329/C/1996 and by allowing ground Nos. 1 to 5 in the appeal for the assessment year 1991-92 in ITA No. 1126/C/1995.
19-27. [These paras are not reproduced here as they involve minor issues.]