COMMISSIONER OF INCOME TAX, BOMBAY versus MYSORE SPINNING & MFG. CO. LTD.

Citation: [1971] 1 S.C.R. 468 · Decided: 30-04-1970 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

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Judgment (excerpt)

468 
COMMISSIONER OF INCOME TAX, BOMBAY 
v. 
MYSORE SPINNING & MFG. CO. LTD. 
Apri: ,o, 1970 
(J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.] 
Indian Income-tax 1922, s. 58K( 1) a.nd s. !0(2)(xv)-Private Provi-
.dent Fund started by assessee company for its en1ployees-Acct11nulation.v 
paid into Employees Provident Fund under the 
E111ployees Provident. 
Funds Act 19 of 1952-Payment whether of a capital nature within tlie 
meaning of s. 58K(l) of the Income-tax Act~Whether <11/owable expen .. 
diture under section 10(2) (xv). 
The assessee company-respondent herein-carried on the business o'i 
manufacture and sale of yarn and cloth. It started in 1914 a Provident 
Fund for the benefit of its monthly rated employees. 
Subsequently, an-
other fund was started. These funds were not recognised under the pro-
visions of Chapter IXA of the Income-tax Act, 1922. 
The employees. 
and the company made contributions to the two funds 'from time to time. 
The Employees Provident Funds Act 19 of 1952 came into force on 3 lst 
October, 1952. 
Under directions given by the Provident Fund Commis-
sioner the assessee company transferred to the statutory Employees Pro-
vidend Fund all the accumulations in the two private funds maintained by 
it including its own contributions thereto made upto October 31, 1952. 
The said contributions amounted to Rs. 3,01,772-1-7. 
In income-tax pro-
ceedings for the assessment year 1957-58, the company claimed deduc-
tion of the above amount of Rs. 
3,01,772-1-7 
from its income. 
The 
Income-tax Officer, the Appellate 
Assistant 
Commissioner 
as 
well as 
Income-tax Appellate Tribunal disallowed the claim. 
In re'ference how-
ever the High Court decided in favour of the Company. 
The Com-
missioner of Income-tax appealed to this Court. The questions that fell 
for considerations were: (i) whether 
the payment in question by 
the 
assessee company was capital expenditure within the meaning of s. 58K(l) 
of Income-tax Act and (ii) whether the said payment could be allowed 
as a deduction under section 10(2) (xv) of the Income-tax Act? 
HELQ : (i) For the application 
of sub-s. (I) of section 58K 
the 
following conditions must be satisfied : (1) The employer should have 
maintained a Provident Fund for the benefit of his employees: (:!) There 
.. should have been a transfer of such fund or operation thereof to trustees: 
(3) Such transfer should have been in trust 'for the employees participlt-
ing in the fund. [472 C-D] 
· 
In the present case the third condition was not satisfied. The common 
statutory fund created under the Provident Funds Act was meant not for 
the employees of the assessee only but also for employees of hundreds of 
other employers who were covered_ by -1ne Act. 
It was not restricted to 
!he employees of the assessee and it could never be said that they alone 
participated in that 'fund. 
In such a situation s. 58K was not applicabl,. 
[412 E: H-473 Al 
(ii) The expenditure was incurred in the relevant accounting year. 
It was something which had gone irretrievably. 
The amount in question 
had -been spent- 'and paii out in the year of accounting, and was, therefore, 
A 
B 
c 
D 
E 
F 
G 
H 
A 
B 
c 
D 
F 
G 
C,l.T, v. MYSORE SPNG. & MFG. co. (Grover, /.) 
469 
allowable as expenditure incurred exclusively for the purpose of the busi-
ness. 
The conditions of s. · 10(2) (xv) had, therefore, been fully satisfied 
in the present case, f473 B-C} 
CIVIL APPELLATE JURISDICTION: Civil Appeals No. 1760 of 
1967. 
Appeals rrom the judgment and order dated February 1, 2,. 
1966 of the Bombay High_ Court in 1ncome-tax Reference No. 60 
of 1961. 
B. Sen, S. K. Aiyar and B. D. Sharma, for the appella,nt. 
M. C. Chagla and A. K. Verma, for the reipondent. 
The Judgment of the Court was delivered by 
Grover, J. 
This is an appeal by certificate from a judgment 
of the Bombay High Court in an Income-tax reference. 
The res-
pondent Company which is the assessee carries on business of the 
manufacture and sale of yam and cloth in Bangalore. 
In 1914 
it started a Provident Fund for the benefit of tile monthly rated 
employees and this fund was called "The Staff Provident Fund''. 
Subsequently another fund was start~d known as the "Workmen 
Provident Funds''. 
These funds were .not recognised under. the 
provisions of Chapter IXA of the Income-tax Act, 1922 (herein-
after called the Act). 
The employees and the assessee made con-
tributions to the two funds from time to time. 
The Employees' 
P

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