9911796707
TMI Blog1962 (4) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... sessments. The assessee is a public limited company carrying on banking business. Some time prior to January 1, 1944, it decided to institute an employee's provident fund. Accordingly, appears that the managing director drew up certain rules and regulations of the fund. These rules came to be considered at a meeting of the board of directors of the bank. On July 24, 1944, the main principles to govern the fund were settled and a trustee committee comprising of three persons was appointed. The three persons were: 1. Sardar Bahadur Sardar Gurbux Singh, Director, Central Board, 2. L. Kishanchand Puri, Managing Director and 3. Sardar Balwant Singh, Chief Accountant. It was also resolved that the provident fund rules may be amended to suit the requirements of the income-tax department. On July 28, 1945, an indenture was executed between the bank and the three persons mentioned above who were appointed trustees of the fund and who were charged with the duty to administer the fund in accordance with the rules and regulations of the fund. The fund was granted recognition by the Commissioner of Income-tax for purposes of Chapter IXA of the Income-tax Act with effect from June 30, 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made from the fund by appointment of trustees of the fund and in whom under the indenture dated July 28, 1945, the fund vested and who were charged with the duty of administering the fund including the duty of making payments therefrom. It urged that under Explanation 2 to section 7 the contribution made by it to the fund was taxable under the head 'salaries'. Section 7(1) provides for payment of tax under the head salaries , inter alia, in respect of profits in lieu of salary . The material portion of Explanation 2 provides: A payment due to or received by an assessee....... from a provident.......fund is to the extent to which it does not consist of contributions by the assessee or interest on such contributions a profit received in lieu of salary for purposes of this sub-section.... It was urged that the trustees of the fund who were charged with the duty of making payments from the fund were under a statutory obligation to deduct income-tax and super-tax on the amount payable at the time of making the payments. Section 18(2) is as follows: Any person responsible for paying any income chargeable under the head 'Salaries' shall, at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the materials the Tribunal has recorded the finding that no effective arrangements were made to secure the deduction of tax at the source by merely appointing trustees for the administration of the fund. If on the other hand the question is considered to be a question partly of fact and partly of law then it is noticeable that in the rules and regulations of the provident fund there was no specific provision charging the trustees with the mandatory duty of deducting the tax due from the provident fund before it was paid to an employee. The question which therefore arises is, whether the mere appointment of trustees without even imposing any obligation on them to deduct tax before making the payment and leaving it to them in the discharge of their duties for the administration of the trust to deduct or not to deduct the tax before making a payment out of the provident fund, can be called an arrangement to secure deduction of tax and not merely this, but whether such an arrangement can be characterised as an effective arrangement. To this question the answer can only be in the negative. It may also be noted that in the case of a recognised provident fund section 58H mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as provided that such additions or alterations shall be made in the regulations by the committee of trustees as might meet with the approval of the Commissioner of Income-tax and in regulation 30 it was provided that if there was anything in the regulations which was repugnant to the requirements of any provision in Chapter IXA the regulation shall, to that extent, be of no effect. As it happened subsequently the fund was recognised but it appears to have been forgotten that the mere formulation of the regulations and the appointment of trustees without any specific obligation being cast on the trustees for deduction of tax at the source could not be called an arrangement, much less an effective arrangement to secure the deduction of tax at the source. In the absence of such arrangement having been made by the assessee a mere legal obligation would not amount to an arrangement so as to satisfy the requirements of section 10(4)(c). It follows that the deduction claimed cannot be allowed under section 10(2)(xv) and the question referred to this court should be answered in the negative. Before parting with the case a preliminary objection raised by learned counsel for the departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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