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TMI Blog1968 (7) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 37(1) of the Act. " The Appellate Tribunal has furnished a very clear statement of the case ; and it is enough if we quote paragraphs 2 and 3 of that statement for the facts of the case : " The assessee is a private limited company carrying on business in printing and paper. The assessee-company was maintaining a private provident fund account for its employees which was, however, not a recognised fund. In the accounting year ended 31st December, 1961, relevant to the assessment year 1962-63, the company came under the purview of the Employees' Provident Funds Act, 1952, and the scheme framed thereunder. As per paragraph 8 of the Scheme, if any of the employees of the company were members of a private provident fund at the commencement of the Scheme, the accumulations in the private provident fund standing to the credit of such employees should be remitted into the State Bank of India to the credit of the employees' provident fund account No. 1 ; and all the amounts relating to the provident fund accumulations lying invested in securities should be transferred to the employees' provident fund ; and the securities thus transferred to the central board of trustee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal expenditure ; (iii) in the present case, the assessee had transferred the aforesaid amount to the provident fund established under the Employees' Provident Funds Act, 1952, and the amounts so transferred actually vested in the trustees appointed by the Government under this Act ; (iv) it did not matter whether the trustees to whom the amount stood transferred were trustees appointed by the assessee or created by a statute ; and (v) sub-rule (2) of rule 14 of Part A of Schedule IV to the 1961 Act applied only to amounts actually paid out of the accumulated balance due to the employees. In the result, the Appellate Tribunal held that the amount of Rs. 18,578 which the assessee transferred to the Provident Fund Commissioner as required by the Employees' Provident Funds Act, 1952, was in the nature of a capital expenditure and was not liable to deduction in determining the total income of the assessee. The learned counsel for the assessee contends before us that, in view of the finding of the Appellate Tribunal that the amount for which the assessee claimed deduction is an expenditure laid out wholly and exclusively for the purpose of the business, the assessee is entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployer has made effective arrangements to secure that tax shall be deducted at source from the amounts paid out of the said fund to employees, the amounts so paid shall be deemed to be an expenditure by the employer within the meaning of section 37, incurred in the previous year in which the said amounts were paid ; and that, in the absence of any such effective arrangements, the whole fund which the employer transfers to the trustees shall be deemed to be of the nature of capital expenditure. This matter is put in a different form in rule 14. Sub-rule (1) provides that the provident fund transferred to the trustees in trust for the benefit of the employees shall be deemed to be in the nature of capital expenditure. The deeming provision shows that it would be treated as capital expenditure, though actually it may not be so. Sub-rule (2) states that, if the employer has made effective arrangements to deduct tax at source from the amount paid to an employee out of the provident fund so transferred, the amount thus paid to the employee by the trustee shall be deemed to be revenue expenditure of the employer. Sub-rule (2) deals with " the amount so transferred " ; and obviously the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d good in the light of the statutory definition of " transfer " contained in the 1961 Act. We are not prepared to accept the above contention of the learned counsel. The discussion contained in the decision of the Bombay High Court whether the transfer mentioned in section 58K of the 1922 Act would take in only a voluntary transfer or also a transfer by operation of law assumed that, in the absence of any provision to the contrary, it would comprise both voluntary and involuntary transfers. Section 2 of the 1961 Act, which contains the definitions, states that the words defined therein would have the meaning given in the said definitions only unless the context otherwise requires. Therefore, while there can be no doubt that " transfer ", as defined in this Act, would include a transfer by operation of law, that definition would not apply, if from the context in which the word " transfer " is used, it is clear that it means only a voluntary transfer. We have already stated our reasons for holding that transfer in rule 14(1) in Part A of Schedule IV in the 1961 Act means only a voluntary transfer. The Bombay High Court, in dealing with the above question, said : " It is indeed true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reposing of confidence by one in another and the other accepting the obligations arising out of the confidence for the benefit of certain other persons. No provision in the Act or the Scheme indicates that this essential requirement for the constitution of a valid trust has been complied with. The second essential condition, in our opinion, is entrustment of the property at the time of the constitution of the trust by the settlor or the author of the trust to the trustees in whom he places confidence. None of the provisions either of the Act or of the Scheme show that this element has been fulfilled. We have already referred to the relevant provisions of the Act as well as the Scheme. At the time the Act was passed neither the fund was in existence nor the board of trustees had been constituted. The Act only empowered the Central Government to frame a scheme. The Scheme when framed constituted the fund. The initial contributions to the fund are by the employers and the fund vests in the board of trustees. The further contributions made are also by the employer and the employees. Thus it would be seen that the property which is administered by the board of trustees was the proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablishment of provident funds for the employees of industrial and other establishments, and to establish a fund in accordance with the provisions of this Act and the scheme. Sub-section (1A) of section 5 reads as follows : " The fund shall vest in, and be administered by, the Central Board constituted under section 5A. " He also referred us to section 5A, which empowers the Central Government to appoint a board of trustees, who constitute the Central Board. Sub-section (3) indicates that the fund is vested in the Central Board. Section 15(2) requires compulsory transfer of accumulations of the provident fund established by an employer to the fund established under the Employees' Provident Funds Scheme. Paragraph 28 of the Scheme deals with the mode of transfer of the accumulations as required by section 15(2) to the fund. The learned counsel also took us through a few more relevant provisions of the above Act and the Scheme, in support of his contention that the view of the Bombay High Court contained in the passage extracted above cannot be sustained in the light of the above provisions contained in the said Act and the Scheme. There is considerable force in this contention ; ..... X X X X Extracts X X X X X X X X Extracts X X X X
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