Superannuation Fund | Limit On Deduction Of Employer's Contribution Applies To Initial/ Annual Contribution, Not Additional Payments: Delhi HC

A division bench of Justices Yashwant Varma and Harish Vaidyanathan Shankar said any contribution made additionally in discharge of an overarching obligation would not be rendered as a disallowable expense.

It thus upheld an ITAT order allowing an employer to fully claim the contributions of ₹9.81 crores it had made towards approved pension funds.

It cited Commissioner of Income Tax vs. Sirpur Paper Mills (1999) where the Supreme Court held that contributions not made for recognition or approval of the fund fall outside the limits that could be prescribed under Section 36(1)(iv).

The High Court thus observed, “The phraseology employed in Section 36(1)(iv) and when it speaks of “subject to such conditions as the Board made deem fit to specify in cases” is to be read along and in juxtaposition with the expression “for the purpose of recognising the provident fund or approving the superannuation fund.”

It added, “...the prescription of limits to the extent of contribution that could be treated as deductible was hinged to the power of the to CBDT impose such conditions for the purposes of recognition or approval of a provident fund or superannuation fund. These were thus recognised by the Supreme Court to be qualificatory conditions for the purposes of recognition as distinguishable from the extent of contribution that may be made in a particular year.”

Court also pointed out that Section 40A(9), which relates to expenses not deductible in certain circumstances, also relates to deductions in connection with the “setting up” or “formation of” or “as contribution to any fund”.

“The disqualification which is then introduced by sub-section (10) of Section 40A too is coupled to the limits that may be prescribed in the provisions specified therein including Section 36(1)(iv),” it added.

The dispute in this case was whether ITAT erred in allowing deduction of ₹9.81 crores as expenditure on account of contribution to approved pension funds.

Revenue argued that such deduction breached the limits prescribed by Section 36(1)(iv). It said laws peg contribution at not exceeding 27% of the salary of an employee for each year.

The High Court however cited Principal Commissioner of Income Tax vs. Exide Industries Ltd. (2022) where the Calcutta High Court had held that the limits that the CBDT could prescribe would only apply to an initial or an ordinary annual contribution.

It was held therein, “the limitations have been prescribed only for the initial contribution and ordinary annual contribution to the funds. Thus, the consequence that would follow is that any other contribution made other than initial contribution or an ordinary annual contribution, would not be covered under the rules and no ceiling has been fixed with regard to the amount of such contribution.”

Accordingly, Revenue's appeal was dismissed.

Appearance: Mr. Indruj Singh Rai, SSC with Mr. Sanjeev Menon, Mr. Rahul Singh, JSCs, Mr. Anmol Jagga & Mr. Gaurav Kumar, Advs for Appellant; Ms. Shashi M. Kapila, Mr. Pravesh Sharma & Mr. Sushil Kumar, Advs for Respondent

Case title: The Commissioner Of Income Tax - International Taxation -3 v. Standard Chartered Grindlays Ltd

Citation: 2025 LiveLaw (Del) 149

Case no.: ITA 388/2019

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