In a significant ruling, the ITAT Delhi held that approval by the Commissioner of Income Tax is not a mandatory requirement to allow deduction of contribution towards EPF under section 38(1)(iv) of the Income Tax Act when the assessee has framed the scheme under the Employees provident Fund Act, 1952.
In the instant case, the AO denied assessees’ claim of deduction of contribution towards Employee’s Provident Fund on ground that assessee failed to prove that the provident fund is recognized by the ld. CCIT/CIT.
Assessee claimed that the definition of ‘recognized provident fund’ u/s 2(38) of the Act, is an inclusive definition and the second condition of a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952 (19 of 1952) is independent from the first condition of recognition of the fund by the Chief Commissioner as lays down under section 2(38) of the Income Tax Act, 1961. Therefore, it was contended that, to claim deduction under section 38( 1)(iv) of the Income Tax Act, 1931 scheme should either be framed under the Employees’ Provident Funds or should be approved by Commissioner under the Income Tax Act, 1961.
Concurring with the above arguments of the assessee, the bench pointed out that the definition of “recognized provident fund” has two limbs, i.e. firstly, the approval/recognition should be by the Principal CIT or Chief Commissioner or the Principal Commissioner or Commissioner in accordance with the I.T. Act and Rules. The second limb is that the Provident Fund should be established under a scheme framed under the Employees Provident Fund Act, 1952. “These are two independent conditions and either of the condition has to be satisfied by the assessee. In the present case, the assessee has contributed to the Provident Fund established under a scheme framed under the Employees Provident Fund Act, 1952 and it has not taken any recognition from the I.T. department u/s 2(38) of the Act. In my view, the assessee satisfies the condition of contributing to Recognized Provident Fund as per section 2(38) of the Act.”
Read the full text of the Order below.
