TMI Blog1989 (1) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited. The assessee was a member of an approved provident fund constituted by the company for which recognition was granted under section 58B(1) of the Indian Income-tax Act, 1922, by an order of the Commissioner of Income-tax, Bombay, on February, 3, 1938. The fund was constituted under certain rules and was a contributory provident fund. By virtue of the rules, the fund came into possession of certain moneys. One of the rules governing the fund and its administration provided for the investment of the funds received by the trustees and for the payment of interest realised thereby to the members. The assessee received interest from the investments made out of the amounts belonging to the provident fund and such interest, to the extent prescribed in clause (b) of rule 6 of Part A of the Fourth Schedule to the Act, was excluded from the assessment. The excess interest was assessed under the head "Salary" as per section 17(1)(vi) of the Act, as could be gathered from the order of the Appellate Assistant Commissioner, though the assessee claimed that a deduction ought to have been allowed to the extent admissible under section 80L of the Act in respect of the said amount. Such inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel for the assessee submitted, referring to the rules of the provident fund, that the interest realised by the trustees by the investment of the funds of the trust would qualify for the benefit of deduction under section 80L of the Act and that it is not necessary that the assessee himself should be the owner of the funds so invested in order to claim the benefit of section 80L of the Act. Reliance was also placed by learned counsel in this connection on the decision reported in CIT v. Smt. Shakuntala Banerjee [1979] 120 ITR 837 (All). On the other hand, learned counsel for the Revenue contended that having regard to the provision contained in clause (b) of rule 6 of Part A of the Fourth Schedule read with sections 15 to 17 of the Act, it is clearly seen that the amounts received by the assessee would partake of the character of "salary" for purposes of the Act and that, therefore, there is no question of claiming the benefit of deduction under section 80L of the Act. It was further submitted that the trustees are the owners of the fund and the assessee, as a beneficiary, has rights against the trustees and the trustees held and invested the funds for the benefit of and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee could be regarded as income by way of interest on deposits with a banking company within the meaning of section 80L(1)(c)(vi) of the Act and included in the gross total income of, the assessee would be a relevant aspect in the consideration of the claim for deduction under section 80L of the Act made by the assessee. It is obvious that if the interest on the investment made by the trustees of the provident fund and distributed to the assessee partakes of the character of "Salary" under the provisions of the Act, then, it would not qualify for the benefit of deduction under section 80L of the Act. Indeed, in the orders of the Appellate Assistant Commissioner and also the Tribunal, this aspect had been dealt with and we are of the view that this is only a closely related aspect with reference to the question referred. It may be useful to refer to the decision of the Supreme Court in CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC), where, discussing the scope of a reference under section 66(1), (2) and (5) of the Indian Income-tax Act, 1922, the Supreme Court has pointed out that when a question is raised before the Tribunal and is dealt with by it, it is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot partake of the nature of "Salary", but retained its character as interest income. We are, however, unable to agree with the view taken by the Tribunal. Rule 2(e) of Part A of the Fourth Schedule states that "annual accretion", in relation to the balance to the credit of an employee, means the increase to such balance in any year, arising from contributions and interest. Under rule 6(b), that portion of the annual accretion in any previous year to the balance at the credit of an employee participating in a recognised provident fund as consists of interest credited on the balance to the credit of the employee in so far as it exceeds one-third of the salary of the employee or is allowed at a rate exceeding such rate as may be fixed by the Central Government in this behalf by notification in the Official Gazette, shall be deemed to have been received by the employee in that previous year and shall be included in his total income for that previous year and shall also be liable to income-tax. Thus, interest credited on the balance in excess of one-third of the salary of the employee or in excess of the rate exceeding the rate fixed by the Central Government is deemed to have been rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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." Despite referring to the aforesaid passage which cautions against the boggling of the imagination when it comes to the inevitable corollaries of treating an imaginary state of affairs as real, the Tribunal has permitted its imagination to boggle. The Tribunal would accept that the excess interest paid to the assessee in accordance with rule 6(b) would be "salary", but for limited purposes. In other words, the Tribunal, while accepting that it is bidden to treat the interest in excess of the prescribed rate in clause (b) of rule 6 of Part A of the Fourth Schedule as "salary" for purposes of the Act, had failed to give full effect to the inevitable corollaries of that state of affairs in that it had pigeon-holed such income as one intended for arriving at the total income, not in any manner affecting the nature of the income. We are unable to agree with this line of reasoning. When under clause (b) of rule 6 read with section 17(1)(vi) of the Act and section 15 of the Act, the payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the decision of the Supreme Court in W. 0. Holdsworth v. State of Uttar Pradesh [1958] 33 ITR 472 (SC). It has clearly been pointed out that the definitions of "trustee", "beneficiary", "beneficial interest", "trust property" and "trust money" emphasise that the trustee is the owner of the trust property and the beneficiary has rights only against the trustee as owner of the trust property and the trustee is the legal owner and the property vests in him as such. It has also been further laid-down that the trust property is held by the trustee for the benefit of the beneficiaries, but such property is not held on their behalf and the expressions "for the benefit of" and "on behalf of" connote different concepts in that the former denotes a benefit enjoyed by another thus bringing in a relationship as between a trustee and a beneficiary or cestui que trust, while the latter contemplates an agency bringing about a relationship between principal and agent between the parties, one of whom is acting on behalf of another. The principles laid down in the decision of the Supreme Court would, in our view, govern this case also. The assessee as member of the provident fund had only a righ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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