Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure Allowability of - Assessment year 1962-63 - Whether where assessee company was maintaining a private provident fund account for its employees, amount of employer's contributions transferred to Regional Provident Fund Commissioner on application of Employees' Provident Funds Act, 1952, was an allowable business expenditure - Held, yes FACTS The assessee-company was maintaining a private provident fund account for its employees which was, however, not a recognised fund. In the accounting year, relevant to the assessment year 1962-63, the assessee came under the purview of the Employees' Provident Funds Act, 1952, and the scheme framed thereunder. The Regional Provident Fund Commissioner directed the assessee-company to transfer to him the entire amount standing to the credit of the provident fund account of the company together with the accumulated employees' contribution. In accordance with the direction, the assessee transferred the entire amount standing in the fund account to the Provident Fund Commissioner in April, 1961. The amount thus transferred by the assessee-company to the Commissioner included amount representing the employer's contribution to the provident fund account of its existing employees from the start of the fund for which income-tax had already been paid in the previous years, as the fund was not a recognised fund. In its income-tax return for 1962-63 the assessee claimed allowance for this amount in computing its assessable income for that year. The ITO rejected this claim on the ground that the company had not actually paid the amount to its employees but only transferred the amount to the State Provident Fund Commissioner and that, therefore, it would amount to a capital expenditure under section 58K(1). On appeal the AAC as well as the Tribunal upheld the decision of the ITO. On reference : HELD Both under the 1922 Act and the 1961 Act, when an employer, who has created a provident fund for the benefit of the employees by deduction out of the salary or wages payable to the employees and also by contribution, if any, made by the employer, pays any amount due to an employee…

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