TMI Blog1980 (5) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant previous years being the years which ended on June 30, 1955, and June 30, 1956, respectively. The assessee-company runs a provident fund for its employees known as " D.C.M. Employees' Provident Fund, 1952 ". The rules and regulations of the provident fund appear to have been framed in 1952, but trust deed in respect of the fund was executed only on July 28, 1954. The assessee-company was exempted from the operation of the Employees' Provident Fund Scheme of 1952 apparently because the terms and conditions of the provident fund already established by it coupled with the trust deed were quite beneficial to the employees concerned. This exemption was granted by a notification of the Central Provident Fund Commissioner dated October 17, 1957, under s. 17 of the Act above referred to. The company also applied to the Commissioner of Income-tax, Delhi and Rajasthan, for the recognition of the provident fund under the provisions of the Indian I.T. Act, 1922. The recognition was granted by the Commissioner by his order dated October 10, 1957. But the recognition so granted was directed to take effect from September 30, 1955. Between July 28, 1954, when the trust deed was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund to the trustees of the provident fund, and that the proprietary rights over the contributions continued to vest in the company itself. He was of opinion that the mere creation of a trust was not enough but that the funds consisting of the employees' contributions should cease to be under the proprietary control of the assessee. The mere creation of a book liability, whether in favour of the employees or trustees, according to the ITO, was not equivalent to payment and did not entitle the company to a deduction. For the same reasons, he was of opinion that the interest earned in the name of the trust continued to belong to the assessee-company itself. On this line of thinking, the ITO held that the assessee had not incurred any expenditure by way of a payment to a provident fund which could be allowed under s. 10(2)(xv) and that the interest on the securities of the provident fund would also represent the company's income. For the disallowance of the contribution made by the assessee to the provident fund, the ITO also relied upon the provisions of s. 10(4)(c) of the Indian I.T. Act, 1922, which provided that nothing contained in s. 10(2)(xv) shall be deemed to authorise " any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been irrevocably vested in the trustees, it held consequently that the income from the assets of the trust were liable to be excluded from the total income of the assessee. It is from this order of the Tribunal that the Commissioner has come up on reference before us. The deductibility of the contributions made by the assessee to the provident fund as well as the taxability or otherwise of the interest income from the investments of the trust in the hands of the assessee are mutually connected issues because the ITO has rested his conclusion so far as both these items are concerned on the ground that there has been no effective parting of funds from the assessee-company to the trust. We agree with the Tribunal that there is absolutely no basis for this conclusion of the ITO. The provident fund is administered under the rules and regulations as well as the trust deed dated July 28, 1954. Under para. 3 of the trust deed, the company declared that the company had transferred and assured unto the trustees thereof, all and singular, the cash and property in India described in cl. 10 thereof and all rights, title thereto or interest therein, to hold the same unto the trustees for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect to say that the assessee would continue to be the owner of these amounts and the interest income. So far as the allowability under s. 10(2)(xv) on this aspect of the matter is concerned, we may refer to the decision of the Allahabad High Court in CIT v. Lakshmi Ratan Cotton Mills Co. Ltd. [1976] 104 ITR 319, which has held that a deduction can be claimed on the basis of such entries made in the account books. We are, therefore, of opinion that the assessee cannot be denied the benefit of deduction for the contributions made by it to the provident fund on the above ground mentioned by the ITO. Likewise, the taxing of the interest income in the hands of the assessee cannot also be sustained. The second objection to the deductibility of the payments made to the provident fund is based on the provisions of s. 10(4)(c) of the Act, which has been extracted earlier. The argument of the department is that in the absence of any provision in the trust deed it cannot be said that the assessee has made effective arrangements for the deduction of tax at source from the payments that would be made out of the provident fund. In support of this contention, reliance is placed on the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the fund constituted under the Act by reason of the provisions of section 9 of the Act is a recognised provident fund within the meaning of Chapter IX-A of the Act. Section 58H, which forms part of Chapter IX-A, enjoins a duty on the trustees of a recognised provident fund to deduct tax payable from the accumulated balances. The statutory provident fund being a recognised provident fund, it casts duty on the trustees of the statutory provident fund that they shall at the time when an accumulated balance due to an employee is paid, deduct therefrom the income-tax payable. The statute itself thus having made a provision for deducting the income-tax at source in section 58H, there was no necessity of making separate provision in respect thereof in paragraph 72 of the Scheme. The position thus that emerges is that the expenditure of Rs. 3 lakhs and odd incurred by the assessee-company is to meet the statutory liability of making contributions to the provident fund. In respect of these contributions effective arrangement has been made by reason of the provisions in section 58H for deducting at source the tax payable thereon. It therefore cannot be said that it was necessary for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court. However, it is unnecessary to go into the above issue in the present case and rest the decision on s. 7(1) read with s. 18(2) as done by the Tribunal. Our attention has been drawn to the discussion in the assessment order which shows that the assessee had placed before the ITO a letter written by the assessee-company to the secretary of the provident fund soon after it was constituted. The managing agents of the company on December 7, 1954, drew the attention of the secretary of the trust to the statutory obligations under the I.T. Act for deduction of income-tax at source and requested him to confirm that he would fulfill this obligation. On December 13, 1954, the secretary gave a reply stating that he was quite conscious of the provisions of the law and confirmed that the tax would be deducted at source when found necessary. These two letters must be read in the context of the important fact that under the trust deed the trustees were all employees of the company. Under cl. 5 of the trust deed, the board of trustees was to consist of 10 members, of whom 5 were the representatives of the company and 5 were members of the fund. If the number of the trustees was increas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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