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TMI Blog1986 (8) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... employees of Maharashtra State Warehousing Corporation. The employees of the Corporation used to contribute out of their salary income and the fund so created is spent for the welfare of the employees. There was, according to the AAC a complete identity of the interest between the contributors and the participants. Quoting the decision of the Andhra Pradesh High Court in the case of CIT vs. Merchant Navy Club (1974) 96 ITR 261 (AP), the AAC held that no person can trade with himself and make a profit. The AAC also relied on the decision of the Delhi High Court in the case of Truck Operators' Union vs. CIT (1981) 22 CTR (Del) 137 : (1981) 132 ITR 62 (Del). The AAC held that what is required is that the members as a class should contribute to the fund and as a class they must be made to participate in the surplus. He further held that the application of the principles of mutuality is not destroyed of the presence of transactions with profit derived form non-members. Similarly, the maintenance of the combined account for all the transactions does not affect the claim. He took note of the fact that the ITO had excluded the members contribution from the taxable income for the asst. yrs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asan, the Departmental Representative argued that the question to be decided was whether the trust is a public charitable trust. The fund was created for the benefit of employees and not for public. He relied on a decision of the Andhra Pradesh High Court in the case of CIT vs. Andhra Pradesh Police Welfare Society (1983) 37 CTR (AP) 294 : (1984) 148 ITR 287 (AP) in support of the argument that the benefit of s. 2(15) was available if the intention was to benefit a section of the public as distinguished from specified individuals. In the present case, the intention of the fund was to benefit the employees of the fund. He then referred to Para 4 of the Regulations of the Maharashtra State Warehousing Corporation Karamchari Welfare Fund, a copy of which was filed by him. Para 4, as per the copy filed by Shri Shrinivasan, read as under: IV. Objects of the funds (i) The objects of the fund are to provide assistance to the needy and deserving employee by way of help and/or loan in cash or/and in kind. (ii) To start general welfare activities and/or to provide welfare facilities for the benefit of groups of employees which involve direct or indirect benefit to the employees and cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions at Page 134. He also argued that no reasons have been given by the AAC in support of his order. He argued that on first principle the principles of mutuality will not apply in the present case and contributions from employer were taxable. Alternatively, he argued that a payment from employer at a fixed rate and of a recurring nature was taxable as a subsidy and again relied on the decision of the Patna High Court (1986) 157 ITR 127 (Pat). In support of this argument, he also relied on the decision of the Bombay High Court in the case of Dharangadhra Chemical Works Ltd. vs. CIT 1977 CTR (Bom) 180 : (1977) 106 ITR 473 (Bom). His further arguments was that if this was not to be treated as Public Charitable Trust, voluntary contributions made by the Corporation partake the character of the income. If this was not a charitable trust, expenditure on the objects of the trust was not admissible. 4. Shri Gadgil, the ld. counsel for the assessee, firstly pointed out that the stand of the Department for earlier year as pointed out by the AAC himself was different for earlier years as pointed out the AAC himself was different. He also pointed out that for the asst. yr. 1978-79 the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gadgil relied on the decision of the Andhra Pradesh High Court in the case of Andhra Pradesh State Civil Supplies Corporation Ltd. vs. CIT (1984) 35 CTR (AP) 376 : (1984) 148 ITR 497 (AP), where the High Court held that test to be applied to determine whether a particular authority is an instrumentality of the State are, if the entire share capital of the Corporation is held by the Government, it would indicate that the Corporation is an instrumentality or agency of Government. In that sense, the Maharashtra SW Corporation was a Public Sector Undertaking. Shri Gadgil, thereafter relied on a decision in Buddaiah vs. CIT (1985) 48 CTR (Kar) 28. Therefore all the consequences that follow from treating the fund as a public chartitable trust should follow and the trust should be given exemption under s. 11. 5. Alternatively, and without prejudice Shri Gadgil argued that even if the test of mutuality was to be applied, the decision of the Andhra Pradesh High Court in the case of CIT vs. Merchant Navy Club (1974) 96 ITR 261 (AP) and the Madras High Court in the case of CIT vs. Madras Race Club 1976 CTR (Mad) 377 : (1976) 105 ITR 433 (Mad) would apply. 6. We have considered the argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the meaning of section 2(15) of the IT Act, 1961. It is, therefore regretted that the institution cannot be granted registration under s. 12-A(a) of the IT Act, 1961." The ITO has been influenced by this decision and has not applied his mind independently to the purpose of the Karamchari Welfare Fund scheme as it was framed originally as well as the scheme as amended in June 1978, copies of both of which have been filed before us by the representative of the contesting parties respectively. We have gone through both the schemes, the original scheme as well as the amended scheme and we are satisfied that the scheme was created for the benefit of the employees and their families of Maharashtra State Warehousing Corporation. Clause 7 of the scheme provided that any employees of the Corporation could become subscriber to the fund also the Corporation shall be a subscriber to the fund. The contributions to the fund were from the employees by way of regular subscriptions and voluntary donations. The rate of employees subscriptions an mode of collection was to be decided by the General Body by passing a resolution in its annual General Meeting, as provided in cl. 8(ii). The Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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