The order of the Bench was delivered by
1 R. K. PANDA (Accountant Member).-This appeal filed by the assessee is directed against the order dated September 2, 2011 of the Commissioner of Income-tax (Appeals)-I, Pune relating to the assessment 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 under section 40A(9) of the Income-tax Act, 1961, is not in accordance with the facts prevailing in the case. The disallowance so made be deleted."
3 The facts of the case, in brief, are that the assessee-company is an undertaking of the Government of Maharashtra established for providing Warehousing facilities. The assessee has contributed a sum of Rs. 18,61,700 towards MSWC Karmachari Welfare Fund and claimed the same as business expenditure. The Assessing Officer following his order for the assessment years 2003-04 to 2005-06 disallowed the claim of the assessee on the ground that the deduction for such contribution is prohibited by section 40A(9) of the Income-tax Act. In appeal the learned Commissioner of Income-tax (Appeals) following his orders for the earlier orders upheld the action of the Assessing Officer. Aggrieved with such order of the Commissioner of Income-tax (Appeals) the assessee is in appeal before us.
4 After hearing both the sides we find the Tribunal in the assessee's own case vide consolidated order dated August 23, 2011 for the assessment years 2003-04 to 2005-06 in ITA No. 382/PN/2007, ITA 794/PN/2007 and ITA No.1372/PN/2007 has allowed the claim of the assessee by holding as under:
"We have carefully considered the rival submissions. 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 employer 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 of contribution to the Karmachari Welfare Fund, as an employer, and therefore, 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 to certain exceptions. As per the said exceptions, no disallowance would be made where such sum is paid: (i) for the purpose and to the extent provided under clauses (iv) or (v) of section 36(1) of the Act; or, (ii) as required by or under any other law for the time being in force. The claim of the assessee is that the contribution to the Karmachari Welfare Fund in question is covered by the second exception 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 assessee's 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 or not. In this connection, we may refer to the judgment of the hon'ble Supreme Court in the case of U. P. Warehousing Corporation v. Vijay Narayan Vajpayee [1980] 3 SCC 459 relied upon by the appellant before us. The status of the entity before the hon'ble Supreme Court was analogous to that of the appellant before us. As has been observed earlier, the appellant is a corporation established by the State Government in exercise of the powers conferred by subsections (1) and (3) of section 28 of the Agricultural Produce (Development & Warehousing) Corporation Act, 1956 (28 of 1956), which was subsequently replaced by Warehousing Corporation Act, 1962 (58 of 1962). The appellant is a statutory body fully controlled and managed by the Government. The entity before the hon'ble Supreme Court was also a similarly established corporation, being a statutory body wholly controlled and managed by the State Government of D.P. The hon'ble Supreme Court referred to its earlier decision in the case of Sukhdev Singh v. Bhagatram Sardar Singh Raghuvansi, AIR 1975 SC 1331 and addressed the question as to whether the Regulations of such a statutory corporation, providing, 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 as to whether such statutory corporations are 'State' within the meaning of article 12 of the Constitution. Nevertheless, the pertinent question was whether the regulations providing for the terms and conditions of employment and conditions of service have the force of law or not ? In this connection, the following portion of the judgment of the hon'ble Supreme Court is worthy of notice :
'The statutory bodies in that case were : Oil and Natural Gas Commission, Industrial Finance Corporation and Life Insurance Corporation. All the three bodies were created under separate statutes enacted by the Central Legislature. It was clear from the Oil and Natural Gas Commission Act, 1954, that the commission created by it, acts as an agency of the Central Government. Similarly, by virtue of the Industrial Finance Corporation Act, 1948, the Finance Corporation is under the control and management of the Central Government. The Life Insurance Corporation is similarly owned and managed by the government and can be dissolved only by the Government in view of the provisions of the Life Insurance Act, 1956. All the three statutes constitution the three statutory corporations enabled them to make regulations which provide, inter alia, for the terms and conditions of employment and services of their employees. Questions arose, (i) whether the regulations have the force of law, and (ii) whether the statutory corporations are 'State' within the meaning of article 12 of the Constitution ? Ray, C.]., speaking for himself and Chandrachud and Gupta, JJ., held that the regulations 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 prescriptive and statutory. The notable feature is that these statutory bodies have no free hand in framing the conditions and terms of service of their employees. They are bound to apply the terms and conditions as laid down in the regulations. These regulations are not only binding on the authority but also on the public. They give the employees a statutory status and impose obligations on the statutory authorities, who cannot deviate from the conditions of service.'
11. The hon'ble Supreme Court held that the regulations framed by the Corporations, being framed under the statutory provisions would have the force of law. The hon'ble Supreme Court further went on to 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 explained by the hon'ble Supreme Court, in our view, the Service Regulations framed by the appellant Corporation for the terms and conditions of employment and services of their employees carry a statutory force. In this context, we have perused the Maharashtra State 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). Therefore, the impugned contribution made by the appellant as an employer towards the Karmachari Welfare Fund falls within the expression 'as required 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."
Since the Assessing Officer and the Commissioner of Income-tax 5 (Appeals) have denied the claim of the assessee under section 40A(9) on the basis of orders for the earlier years in the case of the assessee and since the Tribunal has allowed the claim of the assessee, therefore, respectfully following the decision of the Tribunal in the assessee's own case and in absence of any contrary material brought to our notice we set-aside the order of the Commissioner of Income-tax (Appeals) 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.
In the result, the appeal filed by the assessee is allowed.
Pronounced in the open court on this the 14th day of May 2013.