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Commissioner of Income-tax Vs. United Bank of India Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 33 of 1967
Judge
Reported in[1973]91ITR614(Cal)
ActsIncome Tax Act, 1922 - Sections 10(2), 26(2) and 58K(2)
AppellantCommissioner of Income-tax
RespondentUnited Bank of India Ltd.
Appellant AdvocateB.L. Pal and ;N.L. Pal, Advs.
Respondent AdvocateD. Pal, R. Murarka and ;M. Seal, Advs.
Cases ReferredNew Central Jute Mills Co. Ltd. v. River Steam Navigation Co. Ltd.
Excerpt:
- a.n. sen, j. 1. a question of law relating to the construction of section 58k(2) of the indian income-tax act, 1922, arises for consideration in this reference under section 66(1) of the indian income-tax act, 1922.2. there were 4 scheduled banks, namely, bengal central bank ltd., comilla banking corporation ltd., the comilla union bank ltd. and the hooghly bank ltd. being scheduled banks, they were directly under the supervision and control of the reserve bank of india. there was a proposal for amalgamation of all these four scheduled banks and the proposal was implemented by drawing up a scheme for their amalgamation. bengal central bank ltd. changed its name to united bank of india ltd. and the scheme of amalgamation contemplated that comilla banking corporation ltd., the comilla union.....
Judgment:

A.N. Sen, J.

1. A question of law relating to the construction of Section 58K(2) of the Indian Income-tax Act, 1922, arises for consideration in this reference under Section 66(1) of the Indian Income-tax Act, 1922.

2. There were 4 scheduled banks, namely, Bengal Central Bank Ltd., Comilla Banking Corporation Ltd., the Comilla Union Bank Ltd. and the Hooghly Bank Ltd. Being scheduled banks, they were directly under the supervision and control of the Reserve Bank of India. There was a proposal for amalgamation of all these four scheduled banks and the proposal was implemented by drawing up a scheme for their amalgamation. Bengal Central Bank Ltd. changed its name to United Bank of India Ltd. and the scheme of amalgamation contemplated that Comilla Banking Corporation Ltd., the Comilla Union Bank Ltd. and the Hooghly Bank Ltd. would amalgamate with the United Bank of India Ltd. The scheme of amalgamation which 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 companiesshall, by virtue of the order of sanction, be transferred to and be vestedin and the liabilities of the said companies shall, by virtue of the saidorder, be transferred to and become the liabilities of the transferee companysubject to the provisions contained in the scheme. The transferee companyshall keep the directors of the transferor companies indemnified against anyliabilities, obligations, contracts or agreements.

(16) Upon amalgamation the transferee shall be deemed to have appointed all the employees of the transferors as employees of the transferee on the same conditions of service of the respective transferorcompanies including pay, leave and provident fund on the date of sanction of the scheme of amalgamation subject to such adjustments as may in the discretion of the directors of the transferee company be considered expedient and necessary. In computing the period of service of the said employees whether for the purpose of the Provident Fund Rules or for any other purposes, their period of service with the transferors will be counted ....

(18) That the transferor companies, if necessary and whenever called upon by the transferee company, shall assign and transfer all their assets and liabilities and business outside the Indian Union to the transferee company and will do all acts necessary to give effect to the same. The said transfer will, however, take effect and be operative upon the amalgamation taking effect and not otherwise.

3. In exercise of the powers conferred upon the Reserve Bank of India under Sub-section (4) of Section 44A of the Banking Companies Act, 1949, the Reserve Bank of India sanctioned the said scheme of amalgamation by an order dated 18th of December, 1950, a copy whereof has been set out at page 6 of the paper book. Although the order of the Reserve Bank was made on the 18th of December, 1950, the amalgamation of the said banks had become effective on and from the 1st of January, 1950.

4. Of the amalgamating banking companies, the Comilla Banking Corporation Ltd. and the Comilla Union Bank Ltd. had extended provident fund benefits to their employees. The provident fund in respect of the Comilla Banking Corporation Ltd. was recognised by the Commissioner of Income-tax in the year 1948, although the provident fund benefits to the employees had been extended by the said bank for more than 30 years prior to 1948. Similarly, in the case of the Comilla Union Bank Ltd. the recognition of the Commissioner of Income-tax was given in the year 1949, although the said bank had allowed provident fund facilities to its employees long prior thereto. Though the scheme of amalgamation took effect from 1st January, 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 I, rule 8 of the Code of Civil Procedure, being Suits Nos. 1414 of 1952 and 1415 of 1952 of theOriginal 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 52-53 of the paper book):

' The rules of the provident fund plainly contemplate that the fund is dependent upon the continued existence of the bank. Recently, the bank has been amalgamated with other banks and as a result of the amalgamation the Comilla Union Bank Ltd. has now no legal existence.

I am satisfied that the bank having ceased to exist the purpose of the trust is destroyed and the trust is now extinct under Section 77 of the Indian Trusts Act. It must follow, therefore, that the fund must be distributed in accordance with Rule 30 of the Provident Fund Rules.'

5. The learned judge passed similar orders in Suit No. 1415 of 1952 (O.S.) which related to the Comilla Banking Corporation Ltd. and directed distribution of the fund in accordance with Rule 34 of the Provident Fund Rules of the said bank. The said order appears at pages 54-55 of the paper book. Rule 30 of the Provident Fund Rules referred to in the judgment of the learned judge in Suit No. 1414 of 1952 (O.S.) provides :

' The board of directors shall have power to close the fund at any time and in the event of the fund being closed at any time the fund shall be divided amongst the members by payment to each member of a sum which shall bear the same proportion to the aggregate market value of the securities and any undistributed cash, if any, constituting the fund on the date of such division as the amounts standing to the credit of the member in his individual account on the date of such division bears to the aggregate of the amount standing to the credit of the individual accounts of all the members on the same date. '

6. Rule 34 of the Provident Fund Rules referred to by the learned judge in his order in Suit No. 1415 of 1952 (O.S.) is in similar terms. Pursuant to the said order of this court, the accumulated balance of the provident fund was distributed to the employees in the year 1952, except a sum of Rs. 11,855 which was paid in the year 1953.

7. The United Bank of India Ltd. claimed such payment as expenditure under Section 10(2)(xv) read with Section 58K(2) of the Act.

8. The assessment years under reference are 1951-52, 1953-54 and 1954-55 and the relevant previous years are the calendar years ending on 31st December, 1950, 31st December, 1952, and 31st December, 1953, respectively.

9. The Income-tax Officer rejected the claim of the United Bank of India Ltd. for the assessment year 1951-52, on the ground that no part of the provident fund had been paid to the employees during that year and for the assessment years 1953-54 and 1954-55, on the ground that the said bankwas 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.

10. 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 any question of allowing any part of the claim in the assessment year 1951-52. So far as the claim in respect of 1953-54 and 1954-55 assessment years was concerned, the same was rejected on the ground that the respondent-bank was neither the employer of the employees for whose benefits the provident fund was created nor did it contribute to the provident fund, with the result that the claim could not be allowed under Section 10(2)(xv)/58K(2) of the Act.

11. Being dissatisfied with the decision of the Appellate Assistant Commissioner, the assessee preferred a further appeal to the Appellate Tribunal and contended that the amounts were admissible expenditure under Section 10(2)(xv) read with Section 58K(2) of the Act. It was urged on behalf of the assessee before the Tribunal that, by virtue of Sub-sections (5) and (6) of Section 44A of the Banking Companies Act, 1949, the amalgamation had the effect of putting the respondent-bank in place of the amalgamating units and, hence, all the rights and liabilities of the amalgamating banks devolved on the assessee in the manner and to the same extent as in the case of the amalgamating units. It was further urged on behalf of the assessee that when, after amalgamation, the assessee which had acquired the business of the amalgamating banks was held liable to pay income-tax for and on behalf of the amalgamating banking companies, it was inequitable that the assessee was not to enjoy the benefits which were available to the amalgamating banking companies. On a consideration of Sub-sections (5) and (6) of Section 44A of the Banking Companies Act, 1949, and of the various clauses of the scheme of amalgamation, particularly Clauses 15, 16 and 18 thereof, the Tribunal concluded that the new unit, namely, the assessee, which was formed on amalgamation of the four amalgamating banks, stepped into the shoes of the four banks and that theamalgamating banks lost their separate legal existence. As against such contentions raised on behalf of the respondent-bank, it was submitted before the Tribunal by the departmental representative that the provisions of Section 58K did not apply to the assessee's case at all, because the assessee was not the employer of the persons to whom the provident fund had been paid out. In this connection reference was made to the definitions of ' employer ', ' contribution ' and ' accumulated balance due ' laid down under Section 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.

12. 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 to which the two amalgamating banks, namely, Comilla Banking Corporation Ltd. and Comilla Union Bank Ltd. were entitled, were also available to the assessee. The Tribunal also considered the provisions of Section 26(2) of the Act which lays down that where a person carrying on any business, profession or vocation has been succeeded in such capacity by another person, such person and such other person shall, subject to the provisions of Sub-section (4) of Section 25, each be assessed in respect of his actual share, if any, of the income, profits and gains of the previous year. The Tribunal considered the provisions of Section 26(2), proviso, of the Act, and applying the said proviso to the facts of the instant case before it, the Tribunal held that the person succeeded in the instant case was the amalgamating banks, and, therefore, in assessing the assessee in respect of the income of the amalgamating banks, the assessment must be made as if the assessee was the amalgamating banks themselves. In that view of the matter, the Tribunal was of the opinion that the benefits of Section 58K(2) must be made available to the assessee. Considering all the circumstances of the case, the Tribunal held that the assessee's claim under Section 58K(2)of the Indian Income-tax Act, 1922, was maintainable in respect of all thethree assessment years under reference.

13. On the above facts, the Tribunal has referred the following question :

' Whether, on the facts and in the circumstances of the case, theTribunal was right in holding that the assessee's claim under Section 58K(2)and/or under Section 10(2)(xv) of the Indian Income-tax Act, 1922, wasmaintainable? '

14. Mr. B. L. Pal, learned counsel appearing on behalf of the department, has submitted that the question in so far as it relates to Section 10(2)(xv) as an independent provision for allowance of the claim of the assessee does not arise out of the Tribunal's order. The provision of Section 10(2)(xv), submits the learned counsel, has only to be considered in the light of the provisions contained in Section 58K(2). Mr. Pal has contended that Section 58(2) is attracted only in the following circumstances :

(1) That the employer has previously transferred the provident fund to the trustees.

(2) That a payment is made to an employee participating in the fund of the accumulated balance due to him from the fund. The effect of 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.

15. 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(2Xxv).

16. It is the argument of the learned counsel that the statutory right created by Section 58K(2) is entirely a personal right of the original settlor and such right cannot be transferred; and the legal fiction cannot be extended to a successor when the original transferor, that is the settlor, hasceased to exist. Mr. Pal, therefore, submits that the United Bank of India Ltd., the assessee in the present case, cannot be said to be the employer within the meaning of Section 58K(2) and, therefore, the said section cannot be attracted and the United Bank of India Ltd. cannot claim any benefit under the said section. It is the argument of Mr. Pal that the order of amalgamation cannot have the effect of transferring any such right to the United Bank of India Ltd. and of conferring any such right on the assessee-bank under Section 58K(2) as under the order of amalgamation the provident fund was not and could not be transferred and the provident fund could not be treated as any part of the property of the amalgamated bank. Mr. Pal points out that the contribution to the fund which was transferred to the trustees was made not by the United Bank of India Ltd., but by the Comilla Banking Corporation Ltd. and the Comilla Union Bank Ltd. Mr. Pal has contended that with the amalgamation of the banks the provident fund had ceased to exist and the provident fund was distributed by virtue of the order made by Bachawat J. It is the contention of Mr. Pal that what was distributed amongst the employees on the basis of the order of Bachawat J. cannot be said to be the accumulated balance due or any portion thereof within the meaning of Section 58K(2). Mr. Pal argues that, with the amalgamation of the Comilla Union Bank Ltd. and the Comilla Banking Corporation Ltd. with the United Bank of India Ltd., the said banks ceased to exist and, as the said banks did not have any legal existence, the trust created by the said banks in respect of the provident fund came to an end. It is the argument of Mr. Pal that the distribution of the said fund amongst the employees on the basis that the trust had come to an end in accordance with Rule 30 of the Provident Fund Rules of the Comilla Union Bank Ltd. and Rule 34 of the Provident Fund Rules of the Comilla Banking Corporation Ltd. is not payment of the accumulated balance due to the employees from the said fund within the meaning of Section 58K(2). Mr. Pal has argued that, as the requirements 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 in placing any reliance on the said section. Mr. Pal has, therefore, submitted that the department was justified in rejecting the claim of the assessee. Mr. Pal has referred to the following decisions:

Commissioner of Income-tax v. Central India Spinning and Weaving Co.Ltd., [1939] 7 I.T.R. 187 (Nag.), Commissioner of Income-tax v. Mysore Spinning & ., : [1970]78ITR4(SC) .and Commissioner of Income-tax v. Ajax Products Ltd., : [1965]55ITR741(SC) .

17. 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 case. Dr. Pal, in our opinion, very properly and rightly, has conceded that, on the facts of the instant case, the provisions of Section 10(2)(xv) cannot be invoked independently of Section 58K(2) and no deduction can be claimed by the assessee only by virtue of the provisions contained in Section 10(2)(xv), unless the provisions of Section 58K(2) are also attracted. Dr. Pal has argued that the expression ' accumulated balance due to an employee ' in Section 58K(2) means the balance to his credit on the day he ceases to be an employee of the employer maintaining the fund. This definition, according to Dr. Pal, postulates that to find out the accumulated balance due to an employee, one has to look to the balance to the credit of an employee on the day the relationship between the employee and the employer maintaining the fund ceases. The definition of 'employer', as given in Section 58(b), argues the learned counsel, means, inter alia, the company maintaining a provident fund for the benefit of its employees, and the expression ' maintaining a provident fund for the benefit of its employees ' appearing in Section 58B is merely descriptive of the employer who is claiming the relief under Section 58K(2). The learned counsel argues that, on this interpretation, when Rule 30 of the Provident Fund Rules of the Comilla Union Bank Ltd. or Rule 34 of the Comilla Banking Corporation Ltd. applies, the amount so distributed in accordance with the said rules will satisfy the definition of the accumulated balance due, because when the money is so distributed on account of closure of the fund, the relationship of the employee and the employer maintaining the fund has ceased, as the employer has ceased to maintain the fund. It is the argument of Dr. Pal that, in such a case, the employer can claim under Section 58K(2) as and when the accumulated balance is paid and to claim deduction under Section 58K(2), the employer who satisfies that description, namely, the employer maintaining the fund, can claim the relief under Section 58K(2). The learned counsel contends that, on this interpretation, the Comilla Banking Corporation Ltd. arid the Comilla Union Bank Ltd. could have claimed any portion of the accumulated balance clue as a deductible expenditure under Section 58K(2). It is the contention of the learned counsel that if the Comilla Banking Corporation Ltd. and the Comilla Union Bank Ltd. could have claimed the deduction underSection 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 relief is intimately connected with the enjoyment of business an an important item of assets. Dr. Pal submits that, when the entire business is taken over as a going concern by the process of amalgamation, the transfer of the business or the undertaking together with such statutory right to claim relief or deduction appertaining to the business or the undertaking is not a transfer of a mere personal right and is in fact transfer of assets or property or, in any event, a right incidental to such assets and property. The learned counsel has commented that the income of the Comilla Banking Corporation Ltd. and the Comilla Union Bank Ltd. for the period January 1, 1950, to December 18, 1950, arising out of banking business is included in the income of the United Bank of India Ltd. and it is the comment of the learned counsel that if, for the purpose of assessment, the entire income of these two banks for the relevant period is included in the assessment of the United Bank of India Ltd., then any relief or deduction or allowance to be claimed in the computation of the income, necessarily has to be claimed by the assessee in whose income such income is to be computed. In support of his contention that the right of claiming deduction was not a mere personal right of the Comilla Union Bank Ltd. and of the Comilla Banking Corporation Ltd. and that the same validly vested in the United Bank of India Ltd. as a result of the amalgamation, Dr. Pal has referred to the decision in the case of New Central Jute Mills Co. Ltd. v. River Steam Navigation Co. Ltd., [1959] 29 Camp. Cas. 357 (Cal.) Dr. Pal has also argued that if the theory of legal fiction is to be introduced and considered the said theory should be carried to its logical end and in support of this contention ho has relied on the decision of the Supreme Court in the case ofM.K. Venkatachalam, Income-tax Officer v. Bombay Dyeing and ., : [1958]34ITR143(SC) in which the Supreme Court has quoted with approval the following observations of Lord Asquith of Bishopstone in East End Dwellings Co. Ltd. v. Finsbury Borough Council, [1952] A.C. 109 ; [1951] 2 All E.R. 587, 599 (H.L.).:

' If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from 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.'

18. 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.

19. 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 recognised by the Commissioner, in accordance with the provisions of this Chapter ;

(b) an ' employer ' means--

(i) a Hindu undivided family, company, firm or other association of persons; or

(ii) an individual engaged in a business, profession or vocation whereof the profits and gains are assessable to income-tax under Section 10, maintaining a provident fund for the benefit of his or its employees;

(c) an 'employee' means an employee participating in a provident fund, but does not include a personal or domestic servant;

(d) a 'contribution' means any sum credited by or on behalf of any employee out of his salary, or by an employer out of his own moneysto the individual account of an employee but does not include any sum credited as interest;

(e) the ' balance to the credit' of an employee means the total amount to the credit of his individual account in a provident fund at any time;

(f) the ' annual accretion' to the balance to the credit of an employee mean' the increase to such balance in any year, arising from contributions and interest;

(g) the ' accumulated balance due ' to an employee means the balance to his credit, or such portion thereof as may be claimable by him under the regulations of the fund, on the day he ceases to be an employee of the employer maintaining the fund ; and

(h) the ' regulations of a fund ' means the special body of regulations governing the constitution and administration of a particular provident fund.'

20. Section 58K reads :

' 58K. Treatment of fund transferred by employer to trustee.--(1) Where an employer who maintains a provident fund (whether recognised or not) for the benefit of his employees and has not transferred the fund or any portion of it, transfers such fund or portion 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.

(2) When an employee participating in such fund is paid the accumulated balance due to him therefrom, any portion of such balance as represents his share in the amount so transferred to the trustee (without addition of interest, and exclusive of the employee's contributions and interest thereon) shall, 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, be deemed to be an expenditure by the employer 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.'

21. 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 providentfund 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 contributed by the employer to the provident fund maintained by him for the benefit of the employees, immediately on the fund being transferred to trustees in trust for the employees, is to be regarded as a capital expenditure of the employer ; and the employer, therefore, cannot claim any benefit of deduction as revenue expenditure of the amounts so contributed by him to the provident fund for the benefit of the employees. It, however, appears that the legislature having appreciated that this provision may lead to hardship and cause injustice to the employer who has contributed out of his earnings to the fund maintained by him for the benefit of his employees and then, subsequently, transferred the fund including his contributions to the trustees, has made provision in Section 58K(2) that the amount contributed by the employer to the provident fund transferred to the trustees in trust for the employees, though treated as capital expenditure at the time the fund is so transferred, will be considered to be a revenue expenditure within the meaning of Section 10(2)(xv) at the time of payment to the employee of his dues out of the said fund on the cessation of his employment, if the conditions laid down in Section 58K(2) are satisfied. The effect of Section 58K(2), therefore, is to allow a deduction, if the required conditions are satisfied, as revenue expenditure of the amount contributed by the employer to the provident fund transferred to and vested in the trustees in trust for the employees, as and when the trustees make payment to the employee or employees of his or their dues out of the said fund, although such contribution of the employer to the said fund was deemed to be of the nature of capital expenditure at the time the fund was transferred to the trustees.

22. Section 58K(2) lays down that when an employee participating in any provident fund transferred to and vested in the trustees in trust for the employees is paid the accumulated balance due to him therefrom, any portion of such balance as represents the employer's share of contribution in the amount transferred to trustees and paid to the employee without taking into consideration any addition of interest, employees' contribution and interest thereon, shall be deemed to be an expenditure by the employer within the meaning of Section 10(2)(xv) incurred in the year in which the accumulated balance due 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 thetrustees 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 accordance with the regulations of the fund to the employee on cessation of his employment.

23. In the instant case, the provident fund was distributed amongst the employees pursuant to the decrees made by Bachawat J. on the 1st of August, 1952, in the two originating summons proceedings, being Suit No. 1414 of 1952 relating to the Comilla Union Bank Ltd. and Suit No. 1415 of 1952 relating to the Comilla Banking Corporation Ltd. The learned judge in his judgment held that the banks in question had no legal existence and the banks having ceased to exist the purpose of the trust was destroyed and the trust became extinct, under Section 77 of the Indian Trusts Act. The learned judge further held that the employees' provident fund of the said two banks ceased to have any trustees and the learned judge ordered appointment of trustees as prayed for in the said proceedings and directed that the fund should be liquidated and distributed in accordance with Rule 30 of the Provident Fund Rules in the case of the Comilla Union Bank Ltd. and in accordance with Rule 34 of the Comilla Banking Corporation Ltd. The liquidation of the two funds of the said two banks and distribution thereof to the employees of the said two banks on the basis of the said decrees cannot attract the provisions of Section 58K(2). The amount paid to employees on such distribution pursuant to court's order cannot constitute payment of the accumulated balance due to the employees. ' Accumulated balance due' means the total amount to the credit of an employee's individual account in a provident fund on the day the employee ceases to be in the employment of the employer maintaining the fund or such portion thereof as may be claimable by the employee under the regulations of the fund. This meaning of the term ' accumulated balance due ' is made clear by the definition of the expression given in Section 58G, read with the definition of the term ' balance to the credit ' in Section 58E. By virtue of the regulations contained in the Provident Fund Rules, an employee may not in appropriate cases be entitled to the entire amount lying to his creditin his individual account and may be entitled to claim only a portion thereof. The provisions contained in the regulations of the funds, inter alia in Rules 14 and 15 of the Provident Fund Rules of the Comilla Banking Corporation Ltd. and in Rules 15, 16, 17, 18, 19 and 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 proportion to their shares on a pro rata basis. The said payment was not made to the employees on the basis of termination of the employment of the employees as provided in Section 58K(2); and the said payment was made pursuant to the order of the court on the basis that the trust had become extinct and the trust fund had to be liquidated and distributed amongst the beneficiaries entitled to the fund. The requirements of Section 58K(2) are, therefore, not satisfied in the present case and the provisions of Section 58K(2) cannot be attracted in aid of the assessee. As, in our opinion, Section 58K(2) cannot be attracted to the facts of the present case, we do not think it necessary to consider the submission of Dr. Pal that as a result of the amalgamation the assessee. United Bank of India Ltd. should be considered to be the employer within the meaning of Section 58K(2) in the place of the said two banks. We may only point out that this argument of Dr. Pal may not be of any great assistance, as in that event the employees must be considered to have continued to be in the employment of the assessee, United Bank of India Ltd., and the fund must, therefore, be held to have been distributed amongst the employees during the course of their employment and not on cessation of their employment as required under Section 58K(2). Section 58K(2) does not apply to the facts of the instant case and the provisions contained in Section 26(2) including the proviso therein referred to and relied on by the Tribunal are not of any material consequence.

24. The decisions referred to by Mr. B.L. Pal are not of any great assistance in considering the question involved in the present case. We, therefore, do not think it necessary to deal with the cases cited by him. As in the instant case the requirements of Section 58K(2) are not satisfied and the provisions of the said section cannot be attracted, the decision in the case of New Central Jute Mills Co. Ltd. v. River Steam Navigation Co. Ltd., relied on by Dr. Pal, which deals with the question of the effect of an amalgamation is not of any consequence.

25. We have earlier observed that, independently of Section 58K(2), the assessee in the instant case cannot claim any benefit under Section 10(2)(xv) and the said position could not be seriously disputed by Dr. Pal.

26. The assessee, therefore, cannot claim the benefit of deduction of the amount paid to the employees by way of distribution of the employees' provident fund.

27. In the result we answer the question in the negative, against the assessee and in favour of the department.

28. In the peculiar facts of this case and as the dispute is between the revenue department of the Government and a nationalised bank, we make no order as to costs.

Sankar Prasad Mitra, J.

29. I agree.


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