08 August 2012
Whether the notification issued by the Central Board of Direct Taxes (CBDT) No SO 3433, dated October 21, 1965 holds good in the light Supreme Court judgement in the case of CIT Vs. Sirpur Paper Mills [1999] 237 ITR 41, which states that notification issued by the CBDT cannot curtail the scope of deduction granted by the Income-tax Act, 1961.
However, the notification issued by the Central Board of Direct Taxes (CBDT) No SO 3433, dated October 21, 1965 which lays down that in case of contribution to superannuation fund of employees only 80 per cent of the amount actually paid (subject to ceiling of 25% of employee’s salary for each year as reduced by employer’s contribution to provident fund in respect of each year) would be allowed as deduction and that deduction should be spread over five years.
08 August 2012
Observations and Ruling of the Tribunal The Tribunal observed that a contribution to approved superannuation fund is deductible in principle as long as the quantum of the said contribution does not exceed the prescribed limits specified in Rule 87 and 88 of the Income-tax Rules. The limits prescribed aforesaid are applicable in respect of initial contribution and ordinary annual contribution to the fund. Payment had been necessitated due to shortfall discovered in the course of actuarial valuation of the fund and is in the nature of an exceptional payment to ensure that the superannuation fund is able to discharge its obligation. The amounts paid in excess of the 27% of salaries of the employees were neither towards the ordinary annual contribution nor towards the initial contribution. The disallowance under section 36(1)(iv) of the Income-tax Act read with Rule 87 would not come into play in the case of a payment to make good the shortfall, on the basis of actuarial valuation, in the superannuation fund. The amount was deductible, in principle, under section 36(1)(iv) and the restriction on deductibility as set out in section 36(1)(iv) and Rule 87 would not be applicable and hence the excess contribution would be allowable as a deduction.
Source: ACIT v. Glaxo Smithkline Pharmaceuticals (ITA No. 6444/Mum/2007) dated 28 January 2011
08 August 2012
Thnx Vikas ji for your response... But the above ruling dealt with the amount of contribution revised in accordance with the actuarial valuation. My query is about the deductibility of the amount of initial contribution to the approved superannuation fund. CBEC circular restricts the amount of deduction for initial contribution upto 80%, but Supreme court ruled that full deduction is to be allowed to the assessee. However, no specific amendment in the Act has been made for giving effect to such Supreme court ruling.
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