TCM LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The connected appeals are filed by the Assessee challenging the orders of the Tribunal confirming the income tax assessments for assessment years 1996-97 and 1997-98, We have heard Sri, Arun Raj, learned, counsel for the Appellant and standing counsel Sri. Jose Joseph for the Respondent.

(2.) The common issue raised is whether the Tribunal was justified in confirming disallowance of expenditure incurred by the Assessee by way of contribution to Employees Welfare Fund, the benefit of which will be released to employees on retirement; Disallowance is made for the reason that the funds are not approved and so much so, claim of deduction is hit by Section 40A(9) of the Income Tax Act. Even though counsel for the Appellant contended that claim, being businessexpenditure is liable to be allowed under Section 37(1) of the Act, we are of the view that the provisions contained in Section 40A provide the restrictions subject to which only the various items of deductions covered by the several other sections could be allowed. Section. 40A(9) deals with creation of Trust Funds for making contribution to such funds by the Assessee as an employer. Necessarily the funds referred to therein are funds for the benefit of the employees. What Sub-clause 9 says is that in order to get exemption for such contributions, employees funds should be those falling under Section 36(1)(iv) and (v) of the Act or as required by any other law for the time being in force. The Assessee has no case that employer's contribution was made to a Fund in terms of Clause (iv) and (v) of Section 36(1) or under provision of any other act or Rules. So much so, contribution to unrecognized Employees Welfare Fund by the employer is not allowable by virtue of the express provision contained in Section 40A(9) of the Act. We find support for this position in the earlier judgment of this Court reported in Aspinwall and Co. Ltd. v. DCIT, . We, therefore, reject, both these appeals. So far as the other issue is concerned, which arises in I.T.A.297 of 2010, the claim raised is deduction of expenditure incurred for research and development under Section 35(1) of the Act subject to the ceiling contained in Sub-Section 2 of Section 35. The finding of the Tribunal is that Assessee, besides paying some advance for research equipments, has not carried out any research and the asset itself was acquired in subsequent year. Even though expenditure, both revenue and capital incurred by the Assessee for research and development qualifies for deduction, the advance paid for acquiring assets, in our view, was rightly held to be not the expenditure incurred by the Assessee. In fact, Assessee is entitled to deduction for the year in which equipments were acquired, which happened in subsequent year and so much so, we find no merit for advancing the claim to this year. Consequently both the appeals are dismissed.