124 ITD 332 Per Riyaz S. Padvekar, Judicial Member. - 1. to 15. [These paras are not reproduced here, as they involved minor issues.] 16. next issue is regarding addition made by Assessing Officer b y disallowing claim of assessee-bank in respect of contribution to medical benefit scheme amounting to Rs. 50 lakhs and deleted by CIT (Appeals). assessee had claimed deduction in respect of sum of Rs. 50 lakhs which was assessee s contribution to Retired Employees Medical Benefit Scheme (hereinafter referred to as "medical scheme"). On perusal of tax audit report under section 44AB, Assessing Officer proposed to make disallowance in respect of said contribution as Assessing Officer was of opinion that provisions of section 40A(9) of Income-tax Act are applicable. assessee contended that said expenditure was incurred wholly and exclusively for purpose of assessee s business and, hence, it was allowable expenditure under section 37 of Act. assessee further contended that provisions of section 40A(9) of Act are not applicable as bona fide of expenditure is not doubted. Assessing Officer rejected contention of assessee on both grounds and made addition of Rs. 50 lakhs while computing income of assessee-bank. 17. assessee carried matter in appeal before CIT (Appeals). CIT (Appeals) was of opinion that decision of ITAT, Hyderabad Bench in case of Rassi Cements Ltd. v. ITO [1993] 45 ITD 233 is squarely applicable to assessee s case and, hence, contribution made by assessee does not attract mischief of section 40A(9) of Act and no disallowance was warranted. CIT (Appeals) also accepted alternative contention of assessee that said expenditure is allowable under section 37 of Act. CIT (Appeals) relied on decision of jurisdictional High Court in case of Balakrishnan P., CIT v. Travancore Cochin Chemicals Ltd. [2000] 111 TAXMAN 693 (Ker.). 18. ld. DR vehemently submitted that CIT (Appeals) has not at all properly appreciated facts as well as principles laid down in case of Rasi Cements Ltd. v. CIT (No.1) [2005] 275 ITR 579 (AP). He further argued that presuming that assessee-bank made contribution in consequence of honouring agreement between associate-banks and bank officers association, it cannot be denied that same contribution was for floating funds and there is specific bar for allowing deduction under section 40A(9) of Act. 19. Per contra, ld. CA for assessee submitted that Associate Bank Officers Association has raised some demands on management of S ta te Bank of India and its subsidiary banks. One of demands was formulation of medical scheme for retired officers. He further submitted that for settlement of demands of Associate Bank Officers Association, meeting of management of associate banks and office bearers of association was held at Simla on 23-6-1997. In said meeting, negotiations were held in respect of different demands of association and it was reduced into writing. ld. CA referred to minutes of bipartite meeting held on 23-6-1997 copy of which is placed on record. He submitted that as part of settlement of demands with Bank Officers Association, it was agreed in principle for implementation of scheme and as part of settlement between management of State Bank of India and Associate Banks Officers Association/Union it was decided to contribute Rs. 50 lakhs received for formulation of scheme for providing medical relief to retired employees who were willing to pay contribution fee. ld. CA also referred to scheme which is named as "Retired Employees Medical Benefit Scheme" copy of which is placed on record and submitted that first object of conceding to demand of association was to maintain healthy industrial relation with officers. 20. ld. CA further argued that distinction made under Industrial Disputes Act in respect of employees as workmen and other than workmen h s nothing to do with smooth working of assessee-bank because ultimately officers are also employees of assessee. Moreover, this scheme is demanded by present employees of assessee-bank which will be beneficial to them also after their retirement. ld. CA referred to different aspects of scheme and he submitted that it is bona fide scheme different aspects of scheme and he submitted that it is bona fide scheme for which State Bank of India and other associate banks made their contribution. As far as applicability of section 40A(9) is concerned, he submitted that provisions of said section are not applicable to facts of assessee s case. ld. CA relied on decision of Jurisdictional High Court in case of Travancore Cochin Chemicals Ltd. (supra) and submitted that Jurisdictional High Court has discussed purpose of introduction of section 40A(9) by giving reference to Finance Bill, 1984 that it is introduced to avoid tax evasion in guise of donation to trust and flow back of same amount to employer again. He further submitted that provisions of section 40A(9) are to be interpreted in context for which it is brought on statute book. He further argued that as contribution made by assessee-bank is part of settlement with officers union, it is out of business expediency. ld. CA further argued that in case of Rasi Cements Ltd. (supra), there was no agreement between said assessee s management and union of executive officers and on that basis, it was held that it was unilateral act on part of said assessee-company to make payment and, hence, though ld. Sr. DR has relied on decision of Andhra Pradesh High Court in case of Rasi Cements Ltd. (supra), said decision is distinguishable on facts. ld. CA supported order of CIT(A). 21. We have heard rival submissions of parties. We have also given thoughtful consideration to facts pertaining to this issue as per record available before us. For better understanding of facts in respect of contribution made by assessee-bank to medical scheme, we have directed assessee-bank to file relevant documents. ld. CA of Act has filed copies of following documents: Sr.No. Date Particulars 1. 15- Letter from State Bank of 9-1997 India to assessee-bank informing minutes of bipartite meeting held with Associate Bank Officers Association on 23-6-1997 at Simla 2. 23- Copy of minutes of 6-1997 bipartite meeting held between State Bank of India and Bank Officers Association 3. 1- Copy of Retired 11-1999 Employees Medical Scheme controversy before us is in respect of applicability of section 40A(9) of Act. As per facts available before us, Associate Bank Officers Association (hereinafter referred to as "union") had raised some demands from management of State Bank of India and its subsidiary banks and one of demands was formulation of medical scheme for retired officers. Negotiations were held between management and union at Simla on 23- 6-1997 and it was agreed in principle on behalf of assessee that medical scheme for retired officers would be formulated as stated hereinabove. ld. CA has filed copy of minutes of bipartite agreement as well as copy of scheme in respect of retired employees medical benefit. On perusal of said scheme, it is seen that fund is to be created with contribution from bank as well as pensioners and for administration of funds, managing committee was formed. As per scheme, each member to scheme and his/her respective spouse are beneficiaries. It is further provided that spouse of member will continue to receive benefit even after death of member. Certain ailments and diseases were specified which would be covered under scheme and maximum limit of reimbursement was restricted to Rs. 30,000. As per terms of bipartite agreement between associate bank management and union, assessee paid Rs. 50 lakhs as its contribution towards formulation of fund under scheme. 22. It is necessary to refer to legislative history of sub-section (9) of section 40A of Act. Sub-section (9) of section 40A was inserted by Finance Act, 1984 with effect from 1-4-1980. scope and effect of new provision was explained by Board in its Circular No. 387, dated 6-7-1984 as under: "16.1 Sums contributed by employer to recognised provident fund, approved superannuation fund and approved gratuity fund are deducted in computing his taxable profits. Expenditure actually incurred on welfare of employees is also allowed as deduction. Instances have come to notice where certain employers have created irrevocable trusts, ostensibly for welfare of employees, and transferred to such trusts substantial amounts by way of contribution. Some of these trusts have been set up as discretionary trusts with absolute discretion to trustees to utilise trust property in such manner as they may think fit for benefit of employees without any scheme or safeguards for proper disbursement of these funds. Investment of trust funds has also been left to complete discretion of trustees. Such trusts are, therefore, intended to be used as vehicle for tax avoidance by claiming deduction in respect of such contributions, which may even flow back to employer in form of deposits or investment in shares, etc. 16.2 With view to discouraging creation of such trusts, funds, companies, association of persons, societies, etc., Finance Act has provided that no deduction shall be allowed in computation of taxable profits in respect of any sums paid by assessee as employer towards setting up or formation of or as contribution to any fund, trust, company, association of persons, body of individuals, or society or any other institution for any purpose, except where such sum is paid or contributed (within limits laid down under relevant provisions) to recognised provident fund or approved gratuity fund or approved superannuation fund or for purposes of and to extent required by or under any other law. 16.3 With view to avoiding litigation regarding allow ability of claims for deduction in respect of contributions made in recent years to such trusts, etc., amendment has been made retrospectively from 1-4-1980. However, in order to avoid hardship in cases where such trusts, funds, etc., had before 1st March, 1984, bona fide incurred expenditure (not being in nature of capital expenditure) wholly and exclusively for welfare of employees of assessee out of sums contributed by him, such expenditure will be allowed as deduction in computing taxable profits of assessee in respect of relevant accounting year in which such expenditure has been so incurred, as if such expenditure had been incurred by assessee. effect of underlined words will be that deduction under this provision would be subject to other provisions of Act, as for instance, section 40A(5), which would operate to same extent as they would have operated had such expenditure been incurred by assessee directly. Deduction under this provision will be allowed only if no deduction has been allowed to assessee in earlier year in respect of sum contributed by him to such trust, fund, etc. 16.4 Finance Act has also provided that, notwithstanding anything contained in any other law for time being in force or in instrument creating trust or fund, assessee may, at his option, claim that unexpended amount shall be returned to assessee and, where such claim i s so made, such unexpended amount shall be returned by trustee to assessee as early as possible. assessee may also claim that any asset being land, building, machinery, plant or furniture acquired or constructed by fund, trust, company, association of persons, body of individuals, society or any other institution out of sums paid by assessee be transferred to him and where any such claim is so made such asset shall be transferred to assessee as early as possible." 23. Sub-section (10) to section 40A was also introduced at same time for giving relief, it being in transitional stage and that was to ensure bona fide contribution made before 1-3-1984. Sub-section (10) and sub-section (11) had limited application to contributions made between 1-4-1979 to 1-3-1984. Section 40A(9) reads as under: "40A(9) No deduction shall be allowed in respect of any sum paid by assessee as employer towards setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except where such sum is so paid, for purposes and to extent provided by or under clause (iv) or clause (v) of sub-section (1) of section 36, or as required by or under any other law for time being in force." On bare reading of said provision, it is very clear that any sum paid by assessee as employer towards setting up or formation of or as contribution to any fund, trust, company, association of persons, body of individuals, etc., except to extent provided by or under clauses (iv) and (v) of section 36(1) or required by or under any other law for time being in force is not allowable expenditure. 24. Section 40A(9) had come for consideration before Hon ble High Court of Andhra Pradesh in case of Rasi Cements Ltd. (supra). In said case, company which was engaged in manufacturing of Portland cement had made necessary contribution to Rasi Cements Employees Welfare Trust and Rasi Cements Executive Welfare Trust amounting to Rs. 150 lakhs. As per facts of that case, contribution to Rasi Cements Executive Welfare Trust was as part of agreement between management and union and contribution to Rasi Cements Executive Welfare Trust was not pursuant to any agreement between said company and its executives. On facts of said case, Hon ble High Court upheld decision of ITAT, Hyderabad Bench in Rassi Cement Ltd. s case (supra) and held that Tribunal was correct in law in holding that contributions made by assessee-company in M/s. Rasi Cements Executive Welfare Trust were not deductible in computing income of assessee. 25. In case before us, formulation of medical scheme for retired employees was one of demands by Executive Officers Association and bipartite settlement was reached between management of associate bank and union at Simla. We find force in argument of ld. counsel t h t distinction made in Industrial Disputes Act in respect of employees as workmen and other than workmen has nothing to do with smooth working of assessee-bank because ultimately officers are also employees of assessee-bank. demand for scheme by present employees of assessee-bank is also beneficial to them after their retirement. It was contractual obligation between associate bank s management and union and it was bona fide formulation of funds. In our opinion, whether it is association or union of executives or non- executives, both can hamper smooth working of assessee-bank by resorting to strike or go-slow or other coercive measures if their demands are not settled and this aspect has to be taken into consideration for keeping healthy relation with its employees as good businessman. 26. It is not in dispute that Circular issued by CBDT are Contemporanea expositio and that can be used as aid for interpreting legislative intent for introducing particular provision or enactment as held by Hon ble Supreme Court in case of K.P. Varghese v. ITO [1981] 131 ITR 597. CBDT has issued Circular No. 387, dated 6-7-1984 which is reproduced hereinabove. basic intention of Legislature for insertion of sub-section (9) to section 40A is for discouraging practice of creation of camouflage trust funds, etc., ostensibly for welfare of employees and transferring huge sums to such trusts by way of contribution. Some of trusts are to be created or set up as discretionary trust with absolute discretion to trustees to utilize trust properties in such manner without any proper scheme or safeguards. Moreover, investment of trust corpus was also left to complete discretion of trustees and it was seen that many times, contributions made by employer used to flow back in form of deposit or investment in shares, etc., and to check said modus operandi on part of dishonest assessees using it as effective device for avoiding legitimate tax, sub-section (9) was inserted. At same time, to avoid hardships in case where such trust, funds, etc., had been bona fide set up wholly and exclusively for welfare of employees more particularly prior to 1-4-1984, sub-section (10) was also inserted to section 40A. In our opinion, provisions of section 40A(9) should not make any harm to expenditure incurred bona fide and said provision is meant to apply only in respect of trust funds, society, etc., created by employer or coming under his control so that employer is in position to direct deployment of funds so contributed by him and not to all such contributions which are otherwise bona fide. 27. As stated hereinabove, contribution by assessee-bank is not disputed by Assessing Officer that it is not bona fide. Moreover, in case of Rasi Cements Ltd. (supra), contribution to Rasi Cements Executive of Rasi Cements Ltd. (supra), contribution to Rasi Cements Executive Welfare Trust was not in pursuance of any agreement between that assessee and its executives and, hence, it was held that on facts of said case, contribution was hit by sub-section (9) of section 40A. Moreover, another aspect to be considered here is that if we give careful consideration to CBDT Circular cited above, said provision would have application where funds are under total control of assessee-employer. In present case, fund is not controlled by assessee-bank. In our opinion, decision relied on by revenue of Hon ble AP High Court in case of Rasi Cements Ltd. (supra) is not helpful. In our further considered opinion, bona fide contribution made by assessee as employer to fund set up as part of settlement between assessee-bank and its executive employees is not hit by sub-section (9) of section 40A. We, therefore, uphold order of CIT (Appeals) on this issue. 28. In result, revenue s appeal is dismissed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. STATE BANK OF TRAVANCORE