1985-VIL-42-ITAT-PNE

Equivalent Citation: TTJ 027, 064,

Income Tax Appellate Tribunal PUNE

Date: 02.05.1985

BAJAJ AUTO EMPLOYEES WELFARE FUND.

Vs

INCOME-TAX OFFICER.

BENCH

Member(s)  : T. A. BUKTE., S. V. GAITONDE.

JUDGMENT

V. S. Gaitonde, Accountant Member - These appeals have been filed by the assessee trust against the order of Commissioner under section 263 dated 28th February, 1984 holding that the ITO orders are erroneous insofar they are prejudicial to the interest of revenue in that the ITO had taxed the income at appropriate rate and not at maximum rate as required by law.

2. Shri Mehta raised a preliminary objection that as there is a loss, there could be no prejudice to revenue. We have however noted that the statute uses the word "prejudice" and not "loss". There is a subtle distinction between the two in that prejudice can be caused when one sees the over all position and not merely the particular case or particular assessment year. In Tara Devi Agarwal v. Commissioner (1973) 88 ITR 323 (SC) Commissioner's order resulted in a refund in the case in which order was passed but was held to be correct in view of the repercussions elsewhere. Although the issue for the years may be academic at present, Commissioner cannot go wholly by the state of affairs existing at a particular time. As he has to take stock of the overall position, Commissioner is right in assuming jurisdiction. The preliminary objection is rejected. For assessment year 1981-82 at the relevant time, there was positive income. The fact that the assessee itself is not appeal before us is also a clear pointer. Commissioner's order does affect the assessee adversely.

3. The second preliminary objection was regarding jurisdiction of Commissioner to revise an order which was merged in the order of Commissioner (Appeal) dated 24th Nov., 1983 the order of the Commissioner under section 263 being later in the point of time viz. 28th March, 1984 (for assessment years 1979- 80 & 1980-81). On this issue also we agree with the departmental representative. There are doubtless two Special Bench judgments of Tribunal in favour of the assessee but neither of them had the benefit of examining the M.P. High Court judgment in Commissioner v. R.S. Banwarilal (1982) 140 ITR 3 (MP). In this judgment after reviewing all the case law including the Bombay & Gujarat High Court judgments (which are examined by the Special Bench) their Lordships held that the Bombay High Court judgment in Commissioner v. Seksaria Cotton Mills. (1980) 124 ITR 570 (Bom.) and Gujarat judgment in Karsandas Bhagwandas Patel v. G.V. Shah (1975) 98 ITR 255 (Guj.) constitute a clear authority for the proposition that the merger of the ITO's order is only partial and is confined to points specifically determined by Commissioner (Appeal). As it is admitted that the Commissioner (Appeal) and the Tribunal were concerned only with the quantum, we hold that the jurisdiction assumed is correct.

4. The assessee Trust is assessable at maximum rate unless it fulfils the conditions of proviso to section 164(1). The relevant portion is as under

. . . where the relevant income is receivable by the trustees on behalf of . . any . . . fund created bona fide by a person carrying on a business . . . exclusively for the benefit of persons employed in such business . . . tax shall be charged on the relevant income as if it were the total income of an association of person.

5. Now the assessee is an irrevocable trust settled by Bajaj Auto Ltd. on 27th March, 1976 on five trustees enabling the trustees to spend both the corpus and the income for the declared objective. Clause 5 is as below:

"Only such of the persons who shall be in the employment of the company shall be eligible to receive the benefits from the Welfare Fund, provided further that the benefits from the Fund shall also be extended to the family members and children of the employees of the company, so long as such employees shall continue to remain in the services of the company. It is hereby agreed and declared that once an employee had ceased to be in the employment of the company for any reason whatsoever, he shall not have any right to the asset income or corpus of the Fund but may receive such benefits hereunder as the Board may decide in their sole discretion."

6. Clause 7 specifies the purposes for utilisation of the funds:

1. Hospital treatment, clinical treatment and examinations and medical expenses of the employees of the company and/or family members of the employees the scope of the Employees' State Insurance Scheme if applicable to the employees.

2. Making good the loss of wages or salaries during enforced sick leave (sickness) of an employee or due to accident.

3. Grants in aid to personnel resigning or discharged from the services of the company on health grounds, as for example, tubecular cases, certified by the Company's Medical Officer.

4. Education grants to the employees for education of their children and/or promoting schools, colleges, etc. for education of employees, their family members.

5. Funeral expenses for the employee (and his family members)

6. Provision of library facilities and Indoor and outdoor sports and organising other cultural and social activities.

7. To provide housing facilities to the employees of the company.

8. To construct, maintain and to hire such buildings as may be required for carrying on the objects.

9. To carry out other welfare objects and purposes which are conducive to or beneficial to the company.

Clause 8 gives further discretion to the trustees to contribute to construction of hospital etc. and to hand over the same to any authority or institution which may agree to provide facilities to the employees and their family members.

7. Shri Mehta submitted that prima facie, from the above clauses, the assessee falls under category (iv) of proviso to section 164(1). The Commissioner has however given too narrow a meaning as such to the words of the statute as to the words of the trust deed. He has without reason doubted the bona fides and held that ITO has not examined the issue. He has also referred to the possibility of trust being void an aspect which is not relevant here. If it is relevant elsewhere say in the case of settlor, Commissioner could have dealt with this aspect only in the hands of the settlor.

8. After hearing the departmental representative we agree that the Commissioner had no reason whatever to doubt the bona fide of the trust or to hold that the ITO has not dealt with this aspect. It would amount a total leap in the dark to allege lack of bona fides on the part of the employer or the assessee, without an iota of material to support such allegations. Under section 263 Commissioner is doubtless entitled to hold that certain investigation necessary for examining the correctness of the facts accepted by the ITO have not been made, but he should have some prime facie material to allege that investigation necessary have not been made. If the Commissioner's directions on this point are to be implemented, the ITO will have to go on a fishing and roving enquiry in the hope of getting something on which he could give a finding regarding bona fides. If the Commissioner holds that the bona fides of the employer are to be seen, it is a different matter. We are not called upon to give a finding on this point. We also agree that Commissioner could not have decided in this case what would happen if this trust is void. If as alleged the trust is void being violative of rule against perpetuity it would result, in a resultant trust in favour of the settlor a fact which is relevant here.

9. This brings us to the main question. Shri Mehta explained that according to Commissioner a case can fall under the clause (iv) of the proviso to section 164(1) only if it is marked for the benefit of present employees and for this purpose families of employees and ex-employees are excluded. Ultimately when a benefit is given to the family of the employee it meets the need of the employee whose individual needs cannot be isolated from the collective needs of the family for which the employee has to take full responsibility. No member of the family gets any benefit d'hors the employee Link. Similarly the statute uses the present tense only in respect of income of the trustees. The words "exclusively" also used not for making a distinction between present employee and past employee but for distinguishing one class of persons (employees at any point of time) and another (those who were never employee). In practice, the need of the employee is much greater when he ceases to be one, on account of death, retirement, etc. It is to cover these aspects that the clause 5 has been worded above. Similarly when housing projects are financed by the trust, and an employee take the benefit, he would acquire ownership rights which cannot end with the employment, although initially he got the benefit solely because he was employee. Considering the object of the trust (welfare of staff to get better services) and of the Statute (not taxing bona fide trusts of this type at higher rates) the assessee should be held to be liable to be taxed at the AOP rate and not maximum rate. Accordingly Shri Mehta submitted that the ITO's original order is correct.

10. In reply Shri Walvekar supported the order of the Commissioner. According to him the words of clause (iv) of proviso to section 164(1) are clear and admit of no ambiguity or uncertainty. The legislature having used the word "employee" intended to exclude ex-employees and even members of the family of present employees. It may be that in meeting the needs of the family, the trust is really meeting the needs of the family, the trust is really meeting the needs of the employees but clause 5 is so warded as to indicate that members of the family get the benefit directly independently of any application by the employee. This means that the trust is not "exclusive" for the "employees". Shri Walvekar then pointed out the dangerous portents of abuse. The trust can give all the benefits to an individual in concert with the employer by making the individual "employee" just for one day. Accordingly the departmental representative supported the order of Commissioner.

11. In this rejoinder Shri Mehta submitted that clause 5 does not have the meaning attributed to it by the departmental representative. It is really the needs of the employee that are being met whenever the trust gives benefit to the members of the family. No person gets any benefit except with the employees nexus. As to the possibility of abuse pointed out by the departmental representative Shri Mehta submitted that there is no law which cannot be abused but there should be no such assumption particularly because the board of trustees includes representatives of employer, employees and others objectively interested in the welfare of all the employees.

12. We have examined the facts and arguments. The sub-cl. (iv) of proviso to section 164(1) read as a whole shown clearly that the words "exclusively for the benefit of the employees" refer to a class of persons identifiable with reference to a particular character viz. employment with Bajaj Auto Ltd. Every employee becomes part of the brotherhood and camaraderie inspired by the tie of employment by Bajaj Auto Ltd. Employees as a class get the requisite moral boost and incentive for work only if they feel secure that the trust would come to their rescue in their hour off dire need, which would mere often be, when the family matters are causing anxiety or when they cease to be employees for reasons beyond their control. The word "employee" is thus used to cover existing and former employees in contradistinction to "non employee". The extension of benefit to the family of the employee does not take the case out of clause (iv) of section 164 because the assessee is in effect meeting the needs of the employees. We do not agree with the departmental representative that clause 5 of the trust deed enables the trustees of extend benefit without this employment link. If the intention were to restrict the benefit to trusts giving aid only to existing employees the legislature would have inserted the word "existing" before the word employee. We accordingly hold that clauses 5 and 7 of the Trust Deed do not take the assessee out of clause (iv) of proviso to section 164(1). The contrary view held by Commissioner is therefore held incorrect.

13. Appeals are allowed as above.

 

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