1. This appeal is directed against the order of the Commissioner made under Section 263 of the Income-tax Act, 1961 ("the Act") disallowing the contribution to an approved gratuity fund as deduction in computing the total income for the assessment year 1976-77.
2, The admitted facts are that the assessee had been originally assessed for the assessment year 1976-77 on 17-3-1979 on the income of the business as returned. In computing the income, the assessee had deducted the contributions amounting to Rs. 1,71,701 to the gratuity fund for the employees and Rs. 6,50,000 as initial contribution to the Non-Executive Employees Gratuity Fund. This assessee, along with certain other companies, which were wholly-owned subsidiaries of Brooke Bond Liebig Ltd. (BBL), UK, for administrative convenience, set up a common fund in the name of Tea Estates India (P.) Ltd. Non-Executive Employees Gratuity Fund. Under the rules of that fund, the fund was deemed to be created by the contributing companies within the meaning of Section 36(1)(v) of the Act. Applications for approval of the gratuity fund having been filed by the several companies, the Commissioner, West Bengal, by his Memo No.Assmnt./74-3l-32/CT/GF/16/75-76 dated 3-11-1976 as well as Order No.Assmnt./194/CT/GF/16/75-76 dated 8-4-1980 approved the fund. In making the assessment, therefore, the contribution to such fund had been allowed as properly deductible under Section 36(1)(v). However, on a perusal of the assessment order, the Commissioner, Coimbatore, to whose range the assessment had been transferred in the meanwhile, came to the conclusion that it was erroneous and prejudical to the revenue on the ground that the fund had not been created exclusively for the benefit of the employees of the assessee-company. He, therefore, directed the ITO to modify the assessment and withdraw the deductions.
3. In this appeal, it was contended on behalf of the assessee that the Commissioner had no- jurisdiction to interfere with the assessment under Section 263 and withdraw 'he allowance validly made under the provisions of the Act when the fund had been already approved by the Commissioner. It was argued further that Section 36(1)(v) merely means that the fund should be meant only for the employees and not others who are not eligible for gratuity benefits. Reliance was placed on the rules made in this regard to contend that either on the basis of the interpretation of the section or the rules on the basis of which approval having been given already granted to the fund, the Commissioner had no jurisdiction to interfere in this matter. On the other hand, it was contended on behalf of the revenue that the Act and the Rules did not contemplate a common fund and, therefore, Section 36(1)(v) referred to a fund for exclusive benefit of the employees, a contribution to a fund which entered to the benefit of other employees also will not qualify for deduction (sic). It was, therefore, submitted that the order of the Commissioner should be confirmed.
4. On consideration of the rival submissions, we are of the opinion that the assessee is entitled to succeed, on more than one ground.
Firstly, Section 36(1 )(v) allows a deduction of any sum paid by the assessee as an employer by way of contribution to an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust. The Fourth Schedule lays down the rules for the approval of the gratuity fund in Part C thereof. Rule 2 therein states that the Commissioner may accord approval to any gratuity fund which in his opinion complies with the requirements of Rule 3 and may at any time withdraw such approval if in his opinion the circumstances of the fund cease to warrant the continuance of the approval. Rule 3 specifies the conditions which are : (i) that the fund shall be established under an irrevocable trust in connection with an undertaking in India and not less than ninety per cent of the employees shall be employed in India, (2) the fund shall have as its sole purpose the provision for gratuity to its employees on their retirement after a specific date or on their becoming incapacitated or on termination of the employment after a minimum period of service, and (3) the employer shall be a contributor to the fund and all benefits shall be payable only in India. These rules in the Schedule form part of the Act and amplify the condition in the section that the fund created by the assessee should be for the exclusive benefit of the employees under an irrevocable trust because the rule also says that it should be an irrevocable trust and that the sole purpose should be to provide for gratuity to the employees. This shows that the expression "for the exclusive benefit of the employees" in the section means as explained by the rule that the sole purpose should be for the provision of gratuity to the employees and it should not be a fund which has any other purpose.
The very fact that Rule 3 merely states that the employer shall be a contributor to the fund means that the fund need not be confined to the employees of the assessee only and it could be any fund the sole purpose of which is the provision of gratuity to the employees and to which several assessees whose employees will be benefited may be contributors. It is obvious that the revenue has understood this provision to mean only that because approval had been given to this fund which is a common fund catering to the benefit of the employees of several companies deeming such fund to be created by each of those companies (sic).
We arc unable to agree with the Commissioner that the expression "for the exclusive benefit of the employees" should mean that the fund should be confined to the employees of the assessee alone and cannot be a common fund. The Commissioner had relied on the decision of the Kerala High Court in the case of CIT v. Ouchterlony Valley Estates (1938) Ltd.  58 ITR 618 which was concerned with the expression "wholly and exclusively used for the purpose of the business" occurring in Section 10(2)(v/6) of the 1922 Act and where it was held that the word "exclusively" narrows down the scope of the word "wholly" and had, therefore, a restrictive meaning. Of course, the word "exclusively" cannot but restrict (he scope of the word following it but the question is what is the subject-matter whose scope is being restricted. On this aspect, we find that the Commissioner had not referred to the rules made under the Fourth Schedule which are part of the Act and which amplified this subject of Section 36(1 )(v) whose scope is restricted by the word "exclusive". In the context of the section and the rule, there is nothing to suggest an embargo on a common fund for the benefit of the employees of several assessees as long as the fund is created for the sole purpose of providing for gratuity benefits, the word "exclusive" restricting the purpose of the fund to that of providing gratuity benefits and not of granting any other benefit or any other purposes. Since the word "exclusive" does not qualify the beneficiaries but only the benefit even under Section 36(1 )(v) and as only that meaning is in consonance with the rules in the Fourth Schedule, there is no warrant for the view that there cannot be a common fund with exclusive object of providing gratuity benefit for the employees of other employers who contribute to that fund. Therefore, we are of the opinion that the approval originally given to the gratuity fund was correct and the deductions given in the original assessment for the contributions to such an approved gratuity fund was also correct and the Commissioner was in error in withdrawing the allowance.
5. Secondly, the deduction had been given in the original assessment on the basis that the same was paid by the assessee by way of contribution towards an approved gratuity fund. The fund could be approved only if it conforms to the conditions of the section read with the rules in the Schedule which form part of the Act. Rule 2 of Part C of the Fourth Schedule provides that if the circumstances of the fund cease to warrant the continuance of the approval, the Commissioner may withdraw such approval and there is also provision for appeal against that withdrawal. Having found that the circumstances warranted the approval and circumstances remaining the same, it is difficult to see how even the approval originally granted could have been withdrawn by a mere change of opinion as to whether the expression "for the exclusive benefit of the employees" covered a common fund or not. Be that as it may, as long as the approval granted originally stands and has not been withdrawn by an order made under Rule 2 of Part C of the Fourth Schedule, it would be improper for the Commissioner, acting under Section 263, to assume that the deduction given for the contribution made to such an approved fund was erroneous. The Supreme Court has observed in the case of Gestetner Duplicators (P.) Ltd. v. CIT  117 ITR 1 that- It would be conducive to judicial discipline and the maintaining of certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies that the provident fund satisfies all the conditions under Rule 4 of Part A of the Fourth Schedule to the Act and not sit in judgment over it.
This observation applies with equal force to the approval granted to a gratuity fund. For this reason also, the order of the Commissioner cannot be confirmed. We, therefore, set aside his order on (his point and restore the allowance granted by the ITO in the original assessment. The appeal is allowed.