COMMISSIONER OF INCOME TAX Vs. ELGI EQUIPMENTS LIMITED

JUDGEMENT

(1.) AS to whether the initial contribution made to superannuation fund has to be allowed in its entirety as a deduction, and as to whether the intercom, amplifiers and air-conditioners installed in the computer room in the factory premises are eligible for investment allowance, are the questions which have been referred to us at the instance of the Revenue. These questions arise out of the assessment to income-tax for the assessment years 1982-83 and 1983-84 of the Respondent/assessee who is a manufacturer of air-compressors, car washers, hydraulic lifts, air horns, power brakes, etc.

(2.) THE Appellate Tribunal reversed the disallowance by the Income-tax Officer of a substantial portion, namely 80 per cent, of the initial contribution to the superannuation fund claimed as a deduction. THE Income-tax Officer had relied on a circular of the Central Board of Direct Taxes being S. O. No. 3433, dated October 21, 1965, purported to have been issued by the Board in exercise of power conferred on it under Section 14 of the Act and by which notification the deduction for the initial contribution paid to the superannuation fund by an employer was to be considered for deduction in the year of payment only to the extent of one-fifth of 80 per cent. of the amount. 20 per cent. of the amount was not to be allowed. Initial contribution was not to be allowed as deduction in any year and the allowance of the 80 per cent. was to be spread over a period of five years at the rate of one-fifth of 80 per cent. for five years commencing from the year of first payment. THE Board had also specified yet another condition that the amount of contribution to be taken into account for the purpose of the notification was not to exceed 25 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 the provident fund in respect of the employees for each such year.

(3.) THIS provision provides for the deduction of sums paid by the assessee as an employer by way of contribution to a recognised provident fund or an approved superannuation fund. The limits up to which the sums may be so paid is to be within such amount as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund. The reference to contribution in the opening part of Section 36(1)(iv) does not make any distinction as between annual contribution and initial contribution. The limits Subject to which the contribution may be made are to be prescribed by the rules. Section 2(33) of the Act defines the word "prescribed" as meaning prescribed by rules made under the Act. The power to frame rules has been conferred on the Board by Section 295 of the Act and by rule 11 of Part B of the Fourth Schedule to the Act, More specifically rule 11(c) of the Fourth Schedule which empowers the Board to limit the ordinary annual contribution and any other contributions to an approved superannuation fund by an employer.