COMMISSIONER OF INCOME TAX versus SIRPUR PAPER MILLS ETC. ETC.

Citation: [1999] 2 S.C.R. 10 · Decided: 18-03-1999 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Dismissed

Judgment (excerpt)

A 
COMMISSIONER OF INCOME TAX 
v. 
SIRPUR PAPER MILLS ETC. ETC. 
MARCH I 8, 1999 
B 
(S.P. BHARUCHA AND R.C. LAHOTI, JJ.] 
Income Tax Act, 1961/Income Tax Rules, 1962 
S.36(J)(iv)/Rules B7 and BB-Contributions towards recognised 
C provident fund or approved superannuation fund-Deductions-Notification 
dated 21. 10.1965 issued by Central Board of Direct Taxes imposing conditions 
that only BO% of the amount actually paid can be allowed as deduction and 
that deduction shall be spread out equally over a period of five years 
commencing with the assessment year relating to the previous year in which 
the amount was paid-Held, there is no justification for both the conditions-
D High Court was right in holding that the Notification goes beyond the power 
of the Board u/s.36(1)(iv). 
The respondent-assessee in the previous year relevant to the assessment 
year 1981-82 made contributions to approved super-annuation fund emounting 
to Rs. 2, 70,911 for the current year, and for the past five years an aggregate 
E amount of Rs. 2,14, 785, calculated on the basis of 25% of the employees' 
dues on account of past services. The Income Tax Officer, relying upon a 
Notifica_tion dated 21.10.1965 issued by the Central Board of Direct Taxes, 
allowed the deduction only to the extent of 80% and spread it out over a 
period of five years. On appeal, the Commissioner of Income Tax (Appeals) 
F 
G 
allowed the deduction in full and his order was upheld by the Income Tax 
Appellate Tribunal. The application of the Revenue for referring to the High 
Court the question whether the Tribunal was right in confirming the order 
of the CIT (Appeals) was rejected both by the Tribunal and the High Court. 
Aggrieved, Revenue tiled the present appeals. 
Dismissing the appeals, this Court 
HELD : 1.1. The High Court was right in holding that the Notification 
dated 21.10.1965 goes beyond the powers conferred on the Central Board of 
Direct Taxes under s. 36 (i)(iv) of the Income Tax Act, 1961. 
(16-A; 14-E-FJ 
H 
Hyderabad Asbestos Cement Products Ltd. v. G. Ramanujumu Naidu 
10 
...... -
L
C.l.T. v. SIRPUR PAPER MILLS 
11 
and Y.J. Anjaneyulu, 172 ITR 762, apprqved. 
A 
-
1.2. Notificatio.n dated 21.10.1965 imposes three conditions. The first 
conditions that the total amount of the contribution shall not exceed 25% 
of the employees' salary is a condition which the Board was empowered to 
impose having regard to the provisions in this behalf in Rule 88 of the 
Income Tax Rules, 1962. (15-C-D) 
B 
1.3. There is no justification for the second condition that only 80% 
of the amount actually paid by the employer can b~ allowed as a deduction. 
Section 36 of the Income Tax Act, 1961 states that the deduction shall be 
wholly allowed. Section 36(1 )(iv) itself speaks of "any sum paid." It permits 
the Board to specify conditions but conditions cannot have the effect of c 
curtailing the scope of th~ deduction granted by the Section. The amplitude 
of the deduction p~rmitted by the Section cannot be cut down under the guise 
of imposing a ''condition". In fact this is not a condition but an impermissible 
attempt to re-write the Section. (15-D-F) 
1.4. The last condition that the deduction shall be spread out equally. D 
over a period of five years commencing with the assessment year relating 
to the previous year in which the amount was paid, is no condition but a 
provision superadded to the Section which does not contemplate any such 
distribution of the deduction. Under the Section th~ deduction is available in 
the assessment year relating to previous year in which the payment was E 
made and it must be so granted. (15-G] 
' 
2. The contribu~ions in the instant case were not payments for 
recognition or approval and, therefore, outside the limits that could be 
prescribed under clause (iv) ofs.36(1) in that behalf. (15-Al 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2398 of 1994 F 
Etc. Etc. 
From the Judgmel;lt and Order dated 12.2.92 of the Andhra Pradesh High 
Court in I.T.C. No. 26of1991. 
T. L.V. Iyer, M.L. Verma, Joseph Vellapally, D.A. Dave, S. Rajappa, G 
'· 
Jaideep Gupta, IlK. Prasad, Ms. Pumima Singh, Suman J. Khaitan, P. Venugopal, 
P.S. Sudhir, K.J. J~hn, Rajiv Shakdhar, U.A. Rana, Arun Pednekar, Gaurab 
) 
Banerjee, Mrs. Nandini Gore, Mrs. M. Karanjawala, R.N. Karanjawala and 
Haris Beeran for the appearing parties. 
The Judgment of the Court was delivered by 
H 
12 
SUPREME COURT REPORTS 
[1999) 2 S.C.R. 
A 
BHARUCHA, J. In the

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