TMI Blog2008 (4) TMI 735X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 148 of the IT Act, 1961 (for brevity 'the 1961 Act'), pursuant to reassessment proceedings. It has further been prayed that the respondents be directed not to proceed further till the disposal of preliminary objections by passing a speaking order. For the sake of brevity, the facts are being referred from Civil Writ Petn. No. 19382 of 2006 because facts in every case would not be significant for the question of law raised before us. 2. Brief facts of the case are that the petitioners herein are senior citizens and retired employees of the Board. The petitioners are income-tax assessees and they used to file their respective returns during their service career and even after retirement. It is claimed that the petitioners are covered under the Punjab State Electricity Board Provident Fund Regulations, 1960 (for brevity, 'the 1960 Regulations'), which have been notified under s. 79(c) of the Electricity Supply Act, 1948 (for brevity, 'the 1948 Act'), vide Notification No. 777/PSEB, dt. 9th Sept.,1960. As per provisions of regn. 38 of the 1960 Regulations, interest component on credit balance retained in the provident fund (PF) is exempted from tax in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom other sources' and is liable to be taxed. The assessee has not declared the amount of interest earned for taxation in the asst. yrs. 2002-03 to 2004-05. Therefore, I have reasons to believe that interest income of asst. yr. 2002-03 ₹ 54,959, asst. yr. 2003-04 ₹ 1,70,637 and asst. yr. 2004-05 ₹ 1,65,329 has escaped assessment. 4. The petitioners also filed detailed preliminary objections asserting that interest income cannot be brought within the scope and ambit of tax in contravention of various provisions of the 1925 Act, 1948 Act, 1961 Act and 1960 Regulations as well as clarification dt. 15th June, 2006 issued by the CBDT (P-5). It was, thus, requested that before proceeding further in the matter, preliminary objections should be decided by passing a speaking order (P-6). However, respondent No. 1 instead of deciding the preliminary objections, issued further notices under s. 143(2) of the 1961 Act (P-7) again asking for the details of the PF. The aforementioned notices under ss. 148, 142 and 143(2) of the 1961 Act are subject matter of challenge before this Court. 5. In the written statement filed on behalf of the respondents a preliminary objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r not. The CBDT has replied the question vide letter dt. 15th June, 2006 by stating that interest on GPF is exempt from income-tax as per provisions of s. 10(11) of the 1961 Act, and therefore no TDS was required to be deducted from the payment of interest. (Annex. P-5 colly.) 7. Mr. Jain has also referred to regn. 38 of the Regulations and has submitted that it has been specifically provided that the amount standing at the credit of the subscriber in the PF account normally becomes payable on quitting of service i.e. on retirement, proceeding on leave preparatory to retirement or death or quitting the service on re-employment. However, regn. 38 provides that if a subscriber so desires the amount at his credit in the fund could be retained for a period of five years from the date of retirement, quitting of service etc. In that regard, the regulation requires sending of intimation in writing to the accounts officer either before the date of retirement or quitting service or re-employed or within six months thereof and the balance at the credit of the subscriber would continue to be retained in the fund. A period of five years has to be reckoned from the date of actual retirement/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'deposit' is entirely different than the word 'provident fund' and the character of the fund after retirement of the employee would undergo a change and it would assume the character of deposit. Therefore, the provisions of s. 10(11) of the 1961 Act are not to apply to such a case. He has further submitted that the petitioner has the remedy of filing appeal before the CIT(A) and then to the Tribunal. In that regard he has referred to the order dt. 17th May, 2007 passed by the CIT(A), Patiala setting aside the order of the ITO (Mark A ). He has insisted that the petitioners be asked to first exhaust the remedy of statutory appeal. 11. Having heard the learned counsel for the parties at a considerable length we are of the considered view that all these petitions merit acceptance. We may first deal with the preliminary objection raised by Mr. Putney. According to the learned counsel the petitioners have regular remedy of appeal under s. 246 of the 1961 Act, and, therefore, the petitioners must be relegated to the remedy of appeal by dismissing the writ petitions under Art. 226 of the Constitution. It is true that alternative efficacious remedy of appeal may ordinar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d principles and working rules, the fact remains that the parameters for exercise of jurisdiction under Art. 226 or 227 of the Constitution cannot be tied down in a straitjacket formula or rigid rules. Not less than often, the High Court would be faced with a dilemma. If it intervenes in pending proceedings there is bound to be delay in termination of proceedings. If it does not intervene, the error of the moment may earn immunity from correction. The facts and circumstances of a given case may make it more appropriate for the High Court to exercise self-restraint and not to intervene because the error of jurisdiction though committed is yet capable of being taken care of and corrected at a later stage and the wrong done, if any, would be set right and rights and equities adjusted in appeal or revision preferred at the conclusion of proceedings. But there may be cases where 'a stitch in time would save nine'. At the end, we may sum up by saying that the power is there but the exercise is discretionary which will be governed solely by the dictates of judicial conscience enriched by judicial experience and practical wisdom of the Judge. (emphasis, italicized in print, added) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rules of the fund. It is thus crystal clear that the element of interest in PF would not constitute part of total income and as such would assume exemption from the income-tax. 17. In order to ascertain as to whether the provisions of 1925 Act are applicable to the PF maintained by the Board, a reference may be made to s. 8(2) of the 1925 Act, which confers power on the appropriate Government to issue notification in the Official Gazette directing that the provisions of 1925 Act, are to apply to any PF established for the benefit of the employees of a particular institution specified in the Schedule. A perusal of the Schedule appended to 1925 Act, shows that the name of the Board namely Punjab State Electricity Board has already been notified. 18. The principal controversy as to whether the interest income from PF would continue to qualify for exemption from income-tax could be answered by making reference to the regulations framed by the Board. Regulation 38 deals with PF after an employee quits service either by retirement, proceeding on leave preparatory to retirement or death or otherwise. Relevant portion of regn. 38 is reproduced hereunder : 38. Under regns. 31, 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions which reads as under : 41. All sums paid into the fund under these regulations shall be credited in the books of the Board to an account named 'The Punjab State Electricity Board PF'. Sums of which payment has not been taken within six months after they become payable under these regulations shall be transferred to 'deposits' at the end of the year and treated under the ordinary regulations relating to deposits. 20. A perusal of the above regulation shows that if a subscriber has failed to take the payment within a period of six months after such payment becomes payable under the regulation then the credit balance has to be transferred to 'deposits' at the end of the year and it would be treated under the ordinary regulation relating to deposits. Regulations 38 and 41 when read together would show that an option can be exercised within a period of six months for retention of PF in the accounts of a subscriber and if no option is exercised then after the period of six months it would lose its character as PF and would be transferred to deposits. 21. The CBDT had itself clarified by answering the query of the Board in favour of the assessee. T ..... 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