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income-tax Officer Vs. M.M.L. Khullar - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1985)11ITD180(Delhi)
Appellantincome-tax Officer
RespondentM.M.L. Khullar
Excerpt:
.....fund under the act. part b of the fourth schedule of the act contains the approved superannuation fund rules.rule 3(b) of the said rules lays down the conditions to be fulfilled by the fund for obtaining the approval. another significant departure has been made in this regard by discontinuing the relaxation provided in the proviso to section 58p(b) of the, indian income-tax act, 1922 ('the 1922 act'). under the present rule, no fund which does not conform to the requirements of rule 3(b) of part b of the fourth schedule can be approved. consequently, any payment from the fund outside the terms and conditions stipulated under rule 3(b) is not a payment from the approved superannuation fund. payment of pension to persons leaving the service voluntarily is, therefore, not covered by rule.....
Judgment:
1. The appeal is by the revenue and following specific grounds have been raised before us: 1. The Commissioner (Appeals) has erred in law and on facts in deleting Rs. 66,040 received from the superannuation fund at the time of resignation from Tata Iron & Steel Company.

2. The Commissioner (Appeals)'s order being erroneous may be set aside and that of the ITO be restored.

2. The reasoning of the assessing officer vide assessment order, dated 31-3-1982, reads as under: During the course of the assessment proceedings, it was found that the assessee had received Rs. 66,040 from the superannuation fund during the year. The facts of the case are that the assessee was in service with TISCO up to May 1976. He resigned from there and joined Modi Steels. The assessee was a member of an approved superannuation fund while in service with TISCO. The pensionary claims under the fund were operated by the LIC up to 1-4-1972 and after that by the trustees of the fund. As the assessee resigned from the service of TISCO, he received Rs. 24,052 on 25-5-1978 from the LIC for the period the fund was under the LIC and Rs. 41,988 representing net surrender value with interest from the trustees of the superannuation fund. The assessee was required to explain why this amount should not be added in his taxable income. In response, the assessee filed a written reply along with the opinion of Shri Harihar Lal. In his opinion, Shri Harihar Lal has opined that the receipts from superannuation fund are neither taxable under the head 'Salaries', in view of provision of Section 17(3)(ii) which specifically excluded payments from superannuation fund, nor it is taxable under the head 'Income from other sources'. Regarding the taxability under the head 'Income from other sources' it has been contended that if a certain item of income is taxable under one of the specific heads, the charge under that head exhaust taxability of the income and no part of such income can be brought to charge again under the residuary head. However, this contention is not correct because in the case payments received from superannuation fund are not taxable under the head 'Salaries'. The payments received are also not covered under any of the exemption in Section 10 of the Income-tax Act. There is a specific provision for TDS on the payment received from superannuation fund. It is, therefore, evidently clear that the receipts from superannuation fund are taxable and as they are not taxable under the head 'Salaries', receipt will be taxed under the head 'Income from other sources'.

3. In appeal by the assessee, the learned Commissioner (Appeals) held the amount as being not taxable since, according to the learned Commissioner (Appeals), it was not 'income' and was not assessable under any of the provisions of the Income-tax Act, 1961 ('the Act').

4. Before us, elaborate arguments have been adduced on behalf of the parties. For the revenue, the learned departmental representative, Shri M.M. Bharti, relied strongly on the definition of 'income', as it is inclusively defined under Section 2(24) of the Act. Section 10(25)(ii), read with Section 10(13) of the Act was also pressed into service.

Reliance was also placed on the decisions reported in CIT v. G. Hyatt [1971] 80 ITR 177 (SC), Raja Ragavendra Singh v. State of Punjab [1976] 102 ITR 40 (Punj. & Har.), CIT v. Tollygunge Club Ltd. [1977] 107 ITR 776 (SC) and Lachhman Dass v. CIT [1980] 124 ITR 706 (Delhi). Rule 6 of Part B in Fourth Schedule to the Act was also relied upon, so also sections 15, 17 and 192(5) of the Act. Shri Harihar Lal, the learned advocate for the assessee, took us through the paper book, which, inter alia, contains letter dated 29-4-1977 issued by TISCO to the assessee along with copy of letter, dated 12-4-1978, addressed to the assessee by the trustees of TISCO superannuation fund. The letter dated 25-5-1978 from the LIC to the assessee has also been considered by us.

We have also perused carefully the rules of superannuation scheme framed by TISCO, as stand amended up to 31-3-1981, which was made available, courtesy Shri Harihar Lal.

5. Significant changes have been made in the rules relating to the approved superannuation fund under the Act. Part B of the Fourth Schedule of the Act contains the approved superannuation fund rules.

Rule 3(b) of the said rules lays down the conditions to be fulfilled by the fund for obtaining the approval. Another significant departure has been made in this regard by discontinuing the relaxation provided in the proviso to Section 58P(b) of the, Indian Income-tax Act, 1922 ('the 1922 Act'). Under the present rule, no fund which does not conform to the requirements of Rule 3(b) of Part B of the Fourth Schedule can be approved. Consequently, any payment from the fund outside the terms and conditions stipulated under Rule 3(b) is not a payment from the approved superannuation fund. Payment of pension to persons leaving the service voluntarily is, therefore, not covered by Rule 3(b) of Part B of the Fourth Schedule. Following the above change, Section 58S(1) of the 1922 Act has been omitted being rendered superfluous and no corresponding provision has been made in the 1961 Act.

6. What emerges from the above changes in the rules is that if the payment made is covered by the conditions given under Rule 3(b), the payment is exempt under Section 10(13) being payment from an approved superannuation fund and also excluded from salary under Section 17(3)(ii). In other words, payments made under Rule 3(b) are not salaries and are also exempt under Section 10(13).

7. But if the payment is not covered by Rule 3(b), then the payment does not come within the exemption given under Section 10(23). Once the payment is not covered by the rule, it is not a payment under the approved superannuation fund and the exception given in Section 17(3)(ii) has no application, that exception being extended only to payments made from an approved superannuation fund. The exemption under Section 10(13) does not cover the payment unless it satisfies the conditions given in Sub-clauses (i) to (iv).

8. Section 10(73)(iv) provides exemption of certain payments being refund of contributions to the extent such payment does not exceed the contribution made prior to the commencement of the Act. This special provision has been made to protect the interests of the assessees covered by the proviso to Section 58P(b) and the exemption granted in proviso to Explanation 2 of Section 7(1) of the 1922 Act. That concession is limited to that extent only and does not help other assessees whose contributions start after the 1961 Act.

9. In the case before us also, the payment made by the employer cannot be treated as payment from the approved superannuation fund of the employer and the exception in Section 17(3)(ii) cannot be invoked in aid of the assessee. Therefore, the payment falls within the mischief of Section 17(3)(ii). Even otherwise, the provisions of Section 15 are wide enough to cover this type of payment even without applying the residuary head under Section 56 of the Act.

10. The last and possible contingency is taken care of by Rule 5 of Part B of the Fourth Schedule, which provides that any amount repaid to the employer shall be deemed to be the income of the employer. If the board of directors/trustees decided to forfeit the payment and revert the same to the employer, then also it becomes the income of the employer due to the deeming provision. If the payment is authorised to the employee by obtaining the previous approval of the Commissioner, then the payment loses the character of payment from an approved superannuation fund, the payment being gratuitous in nature. Then such payment attracts the provisions of Sections 15, 17 and even 56. There is no escapement from taxation being clearly an income within the definition of Section 2(24). That explains the insertion of section 192(5) and Rule 6 of Part B of the Fourth Schedule. We hold accordingly.

11. In the net result, the amount of Rs. 66,040 is held to be taxable.

The appeal succeeds and stands allowed.


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