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TMI Blog1971 (9) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 effect as from the 1st day of January, 1950.... (15) The properties and assets of the amalgamated banking companies shall, by virtue of the order of sanction, be transferred to and be vested in and the liabilities of the said companies shall, by virtue of the said order, be transferred to and become the liabilities of the transferee company subject to the provisions contained in the scheme. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary, 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 procedure, being Suits Nos. 1414 of 1952 and 1415 of 1952 of the Original Side of the Calcutta High Court were brought by way of originating summons. Bachawat J., who heard the said suits, held in his judgment in Suit No. 1414 of 1952 (O.S.) which related to the provident fund of the Comilla Union Bank Ltd. (at pages 52-55 of the paper book) : " The rules of the provident fund plainly contempl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees 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 order for the first two years was passed practically simultaneously in March, 1961, while the Appellate Assistant Commissioner's order for the third year, namely, 1954-55, was passed by another Appellate Assistant Commissioner on 3rd July 1961. The Appellate Assistant Commissioner was of the opinion that as no amount was either paid or payable in the accounting year 1950, there could not be ally question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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, because the Indian Income-tax Act, 1922, did not provide for any such allowances and as such the relief claimed under the provisions of section 58K(2) were not available in the present case. The Tribunal, however, accepted the arguments put forward on behalf of the assessee and held that in determining the quantum of income-tax payable by the assessee, deduction and allowances out of the total income t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 expenditure, treated as made by him under section 58K(2), is taken to be the expenditure incurred in the year of payment made by the trustee to the employees ; and (c) though the transfer of the entire fund was treated as capital expenditure under section 58K(2) a portion of the fund is now treated as allowable expenditure within the meaning of section 10(2)(xv). It is the argument of the learned counsel that the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the assessee which has acquired all the rights and liabilities of the Comilla Union Bank Ltd. and the Comilla Banking Corporation Ltd. is entitled to claim the deduction as provided under the said section. It may be noted that Dr. Pal has not argued that, independently of the provision contained in section 58K(2), the assessee would be entitled to claim the deduction under section 10(2)(xv) on the facts of the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 counted. Dr. Pal has argued that the right to claim relief under section 58K(2) is not a personal right of the Comilla Banking Corporation Ltd. or of the Comilla Union Bank Ltd. which had started the employees' provident fund and had transferred the same to the trustees. It is the argument of Dr. Pal that an undertaking or a business as a going concern is a property and the right to claim certain statutory deduction or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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 deduction. Section 58K(2) occurs in Chapter IX-A of the Act which makes special provisions relating to certain classes of provident funds. The relevant provisions of the statute may be set out. Section 58A deals with definitions and provides : " In this Chapter, unless there is anything repugnant in the subject or context,-- (a) a 'recognised provident fund' means a provident fund which has been and continues to be recogn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 the termination of the employment of the employee or employees concerned, Section 58K(1) provides that when the provident fund maintained by an employer for the benefit of the employees is transferred to trustees in trust for the employees participating in the fund, the amount so transferred shall be deemed to be of the nature of capital expenditure. The effect of the provision contained in section 58K(1), therefore, is that the amount c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. This section, in our opinion, is not intended to cover cases when for some reason or the other the trust in favour of the employees comes to an end and the trustees and the employer both cease to exist ; and the trust fund is distributed on the basis of an order made by a court. Section 58K(2) is intended to apply to payments of the dues to an employee, from the provident fund vested in trustees, made by the trustees in the usual course in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under rule 34 in the case of the employees of the Comilla Banking Corporation Ltd. and under rule 30 in the case of the employees of the Comilla Union Bank Ltd., the employees did not receive payment of the accumulated balance due within the meaning of section 58K(2). The employees received payment on liquidation of the said fund as beneficiaries under the trust which has ceased to exist of all such amounts as became payable to them in proport ..... 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