TMI Blog1971 (9) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... r scheduled banks and the proposal was implemented by drawing up a scheme for their amalgamation. Bengal Central Bank Ltd. changed its name to United Bank of India Ltd. and the scheme of amalgamation contemplated that Comilla Banking Corporation Ltd., the Comilla Union Bank Ltd. and the Hooghly Bank Ltd. would amalgamate with the United Bank of India Ltd. The scheme of amalgamation which has been set out at pages 7 to 10 of the paper book, inter alia, provides : (1) The United Bank of India Ltd., formerly the Bengal Central Bank Ltd., shall be the transferee bank and hereinafter referred to as the transferee . The registered office of the transferee will, on amalgamation, be at No. 4, Clive Ghat Street, Calcutta. (2) The Comilla Banking Corporation Ltd., the Comilla Union Bank Ltd. and the Hooghly Bank Ltd. shall be the transferor banks and hereinafter referred to as the "transferors". (3) The banks abovementioned will be amalgamated.... (5) The amalgamation will be on the basis of their respective balance-sheets as on 31st December, 1949, and for the purpose of accounting and for determining profit and loss of the amalgamated bank the transfer will be deemed to take effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent fund benefits to the employees had been extended by the said bank for more than 30 years prior to 1948. Similarly, in the case of the Comilla Union Bank Ltd. the recognition of the Commissioner of Income-tax was given in the year 1949, although the said bank had allowed provident fund facilities to its employees long prior thereto. Though the scheme of amalgamation took effect from 1st January, 1950, yet, as the order of the Reserve Bank was passed towards the end of that year, viz., the 18th December, 1950, the two amalgamating banks, namely, the Comilla Union Bank Ltd. and the Comilla Banking Corporation Ltd., continued to contribute their quota to the employees' provident fund until 18th December, 1950. The total accumulated balances of the provident fund comprising of the employers' as well as employees contributions standing to the credit of the employees of the said two banks in the year 1950 amounted to Rs. 5,79,894. During the accounting year, before the actual amalgamation order came; the said two banks had paid out a total sum of Rs. 10,407 towards the provident fund to their employees. In the year 1952, representative suits under Order 1, rule 8 of the Code of Civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The assessment years under reference are 1951-52, 1953-54 and 1954-55 and the relevant previous years are the calendar years ending on 31st December, 1950, 31st December, 1952, and 31st December, 1953, respectively. The Income-tax Officer rejected the claim of the United Bank of India Ltd. for the assessment year 1951-52, on the ground that no part of the provident fund had been paid to the employees during that year and for the assessment years 1953-54 and 1954-55, on the ground that the said bank was neither the employer nor the contributor of the provident fund for the purpose of the claim under section 10(2)(xv)/58K(2). The Income-tax Officer passed separate orders for all the three years rejecting the assessee, United Bank of India Ltd's claim, of Rs. 3,24,775 for the first year, Rs. 2,89,947 for the second year and half of Rs. 11,855 for the third year. Being aggrieved by the decision of the Income-tax Officer, the United Bank of India Ltd. which happens to be the assessee came up on appeal before the Appellate Assistant Commissioner, but was unsuccessful. The Appellate Assistant Commissioner passed three separate orders for the three different years. The appellate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent-bank, it was submitted before the Tribunal by the departmental representative that the provisions of section 58K did not apply to the assessee's case at all, because the assessee was not the employer of the persons to whom the provident fund had been paid out. In this connection reference was made to the definitions of "employer", "contribution" and "accumulated balance due" laid down under section 58A of the Income-tax Act and it was further submitted that since the provident fund did not form any part of the balance-sheet of the respective amalgamated companies as on the 31st December, 1949, the provident fund was not taken over by the assessee-company under the aforesaid scheme of amalgamation and since the provident fund was no part of the property taken over by the assessee from the amalgamated companies, it could not claim deduction of the provident fund contributed by the amalgamated companies prior to their amalgamation, in the present assessments. It was submitted by the departmental representative before the Tribunal that the assessee as the successor in the business of the amalgamating companies could not be entitled to the allowances available to the latter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel, has only to be considered in the light of the provisions contained in section 58K(2). Mr. Pal has contended that section 58(2) is attracted only in the following circumstances : (1) That the employer has previously transferred the provident fund to the trustees. (2) That a payment is made to an employee participating in the fund of the accumulated balance due to, him from the fund. The effect of section 58K(2), argues the learned counsel, is,- (i) the portion of the balance paid which represents the employers' share in the amount transferred to the trustee, without addition of interest and exclusive of the employees' contributions, shall be deemed to be, (a) an expenditure by the employer, and (b) within the meaning of section 10(2)(xv) ; and (ii) the expenditure is treated as incurred in the year in which the accumulated balance is paid. Mr. Pal argues that three legal fictions are thus created, namely : (a) though the payment is made by the trustees, it is treated as an expenditure made by the employer who transferred the fund, that is to say, the settlor of the fund ; (b) though the settlor made the transfer of the total fund in an earlier year, the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the said fund amongst the employees on the basis that the trust had come to an end in accordance with rule 30 of the Provident Fund Rules of the Comilla Union Bank Ltd. and rule 34 of the Provident Fund Rules of the Comilla Banking Corporation Ltd. is not payment of the accumulated balance due to the employees from the said fund within the meaning of section 58K(2). Mr. Pal has argued that, as the requirements of section 58K(2) are not satisfied, the assessee cannot claim any benefit under the said section. Mr. Pal has commented that section 26 has no application to the facts of the present case and the Tribunal was wrong-on-in placing ally reliance on the said sections Mr. Pal has, therefore, submitted that the department was justified in rejecting the claim of the assesess. Mr. Pal has referred to the following decisions : Commissioner of income-tax v. central India spinning and weaving Ltd Commissioner of Income-Tax Mysore Spinning Manufacturing Ltd. and Commissioner of Income-tax v. Ajax Produtcts Ltd. Dr. D. Pal, learned counsel appearing on behalf of the assessee, has submitted that the requirements of section 58K(2) are all complied with in the instant case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employer maintaining the fund, can claim the relief under section 58K(2). The learned counsel contends that, on this interpretation, the Comilla Banking Corporation Ltd. and the Comilla Union Bank Ltd. could have claimed any portion of the accumulated balance due as a deductible expenditure under section 58K(2). It is the contention of the learned counsel that if the Comilla Banking Corporation Ltd. and the Comilla Union Bank Ltd. could have claimed the deduction under section 58K(2), the United Bank of India Ltd., which has taken over the entire rights and liabilities of these two banks as a result of the amalgamation, is entitled to claim the same. Dr. Pal points out that even under clause 16 of the scheme of amalgamation, the United Bank of India Ltd. is deemed to have appointed all the employees of the transferor companies as the employees on the date of the sanction of the scheme on the same conditions of service, of the respective banks, including pay, leave and provident fund ; and in computing the period of service also of the employees, whether for the purpose of the Provident Fund Rules or for any other purpose, their period of service with the amalgamated banks will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Lord Asquith of Bishopstone in East End Dwellings Co. Ltd. v. Finsbury Borough Council : " If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs ; it does not say that, having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." In the instant case Dr. Pal, on behalf of the assessee, did not dispute, as he possibly could not dispute, that the assessee would not be entitled to make any claim for deduction under section 10(2)(xv) independently of the provisions contained in section 58K(2). Dr. Pal did not, as he could not, raise any such contention. The real question that falls for determination, therefore, is whether, on a true construction of section 58K(2), the assessee (United Bank of India Ltd.) is entitled to the benefit of the ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." A plain reading of section 58K suggests, in our opinion, that this section is intended to cover normal cases of payment of provident fund dues to an employee on the termination of his employment by the trustees in whom the fund has vested in trust for the employee. Section 58K contemplates cases of transfer of provident fund maintained by an employer for the benefit of the employees to trustees in trust for the employees participating in the fund and payment by the trustees to the employee or employees the accumulated balance due to him or them out of the fund so transferred in trust to them, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accumulated balance due to him therefrom, any portion of such balance as represents the employer's share of contribution in the amount transferred to trustees and paid to the employee without taking into consideration any addition of interest, employees' contribution and interest thereon, shall be deemed to be an expenditure by the employer within the mearning of section 10(2)(xv) incurred in the year in which the accumulated balance due to the employee is paid, 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. This section postulates payment to the employee of his dues from the provident fund by the trustees to the fund on the termination of his employment and this section further requires the employer to make effective arrangements for deduction of tax at source from the amount of the share of the employer's contribution at the time of payment to the employee. This section, therefore, clearly contemplates existence of the fund, existence of the trustees to the fund, existence of the employer and the existence of the employee who was being paid on cessation of the employment. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 58E. By virtue of the regulations contained in the Provident Fund Rules, an employee may not in appropriate cases be entitled to the entire amount lying to his credit in his individual account and may be entitled to claim only a portion thereof. The provisions contained in the regulations of the funds, inter alia, in rules 14 and 15 of the Provident Fund Rules of the Comilla Banking Corporation Ltd. and in rules 15, 16, 17, 18, 19 and 26 of the Provident Fund Rules of the Comilla Union Bank Ltd., furnish some examples in point and provide for cases when portion of the balance to the credit of an employee in his provident fund account may be claimable by him. Provisions of this nature, usually to be found in the regulations of every fund, may deprive an employee of the benefit of the entire balance to his credit and may only entitle him to a portion thereof and they illustrate the meaning of the expression "such portion thereof as may be claimable by him under the regulations of the fund" used in the definition of accumulated balance due in section 58G. When the fund came to be liquidated and distributed amongst the employees of the said two banks, entitled to the said fund unde ..... 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