TMI Blog1970 (4) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the manufacture and sale of yarn and cloth in Bangalore. In 1914 it started a provident fund for the benefit of the monthly rated employees and this fund was called "The Staff Provident Fund". Subsequently another fund was started known as the "Workmen's Provident Fund". These funds were not recognised under the provisions of Chapter IXA of the Income-tax Act, 1922 (hereinafter called "the Act"). The employees and the assessee made contributions to the two funds from time to time. The Employees' Provident Funds Act (to be referred to as the Provident Funds Act) came into force on 31st October, 1952. The amounts standing to the credit of the two funds on that date so far as they are referable to the contributions by the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 3,01,772-1-7 which represented the assessee's contribution to the two funds up to 31st October, 1952. The assessee claimed deduction in the assessment for the assessment year 1957-58 on account of the transfer of the amount of Rs. 3,01,772-1-7 to the Provident Fund Commissioner. The income-tax Officer disallowed this claim on the ground that the amount in question was liable to be treated as "capital expenditure" under the provisions of section 58K of the Act. An appeal was taken to the Appellate Assistant Commissioner but it failed. The assessee appealed to the Appellate Tribunal. The Tribunal held that there was a transfer of the fund to trustees which came within the scope of section 58K of the Act, and therefore, the amount was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plated by section 58K(1) would also include involuntary transfer. According to the High Court the position that emerged on a consideration of the material provisions of the Provident Funds Act and the scheme framed thereunder was as follows: For the administration of the statutory provident fund which came into existence and stood constituted on the framing of the scheme, a board of trustees called the Central Board of Trustees was constituted. On the framing of the scheme and the constitution of the statutory provident fund the employers in the industries to which the Provident Funds Act applied were required to transfer the accumulated balances of the provident fund, if any, which had been maintained by them. Similarly, trustees of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be of the nature of capital expenditure. (2) When an employee participating in such fund is paid the accumulated balance due to him therefrom, any portion of such balance as represents his share in the amount so transferred to the trustee (without addition of interest, and exclusive of the employee's contributions and interest thereon) shall, if the employer has made effective arrangements to secure that tax shall be deducted at source from the amount of such share when paid to the employee, be deemed to be an expenditure by the employer within the meaning of clause (xv) of sub-section (2) of section 10, incurred in the year in which the accumulated balance due to the employee is paid." For the application of sub-section (1) the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust in the trustees for the purpose of carrying out his desires, wishes and directions and the acceptance of those obligations by the trustees was absent in the present case. It is, however, not necessary to examine in detail this aspect of the matter because, as observed before, the fund under the Provident Funds Act was not restricted to the employees of the assessee only and it could never be said that they alone participated in that fund. In such a situation section 58K could not be made applicable. Hardly any argument was addressed on the decision of the High Court on the second question. The expenditure was incurred in the relevant accounting year. It was something which had gone irretrievably. The amount in question had b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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