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TMI Blog1982 (2) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... troversial point arises like this. The employer of the assessee is maintaining a recognised provident fund, to which both the assessee and the employees contribute. The interest credited to this provident fund was in excess of one-third of the salary of the assessee by Rs. 25,248 for the assessment year 1977-78 and Rs. 35,046 for the assessment year 1978-79. These amounts were shown by him in the returns filed for the respective years. So, the ITO included them for the assessment. However, thereafter, the assessee appealed against its inclusion. It was submitted before the Commissioner (Appeals) that under rule 6(b) of the Fourth Schedule dealing with recognized provident fund, two conditions are given in respect of the interest which has to be treated as income. The conditions are that the interest on the accumulated balance should exceed one-third of the salary and that the rate at which the interest is paid also should exceed the official rate. According to the assessee, these are not alternatives but cumulative conditions. Unless both the conditions are satisfied, no addition could be made. The Commissioner (Appeals), however, rejected this submission. He pointed out that if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent in the provisions. He further submitted that the arguments based on hardship are not at all material. 6. We will set out the rule which we are required to interpret : "6. That portion of the annual accretion in any previous year to the balance at the credit of art employee participating in a recognised provident fund as consists of--- (a) contributions made by the employer in excess of ten per cent of the salary of the employee, and (b) interest credited on the balance to the credit of the employee insofar as it exceeds one-third of the salary of the employee is allowed at a rate exceeding such rate as may be fixed by the Central Government in this behalf by notification in the Official Gazette, shall be deemed to have been received by the employee in that previous year and shall be included in his total income for that previous year, and shall be liable to income-tax." The controversy is in respect of the provisions of clause (b). The rule states that the interest credited on the balance to the credit of the employee insofar as it exceeds one-third of the salary or the interest credited on the balance to the credit of the employee is allowed at a rate exceeding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome profits are made but they are less than the normal profits, tax could only be imposed either on the one or on the other, and that accordingly a tax on the actual profits earned would bar the imposition of tax on the profits which might have been received. Obviously, that could not have been intended, and the word 'or' would have to be read in the context as meaning 'and' : vide Maxwell's The Interpretation of Statutes, Tenth Edition, pages 238-239. But that, however, does not affect the present question which is whether the word 'derived' indubitably points to the business of the non-resident as the one taxable under section 42(2), and for the reasons already given, the answer must be in the negative." We may also refer to a decision of the Bombay High Court wherein the expression "or" was construed conjunctively. In the case of Yakub Versey Laljee v. CIT [1946] 14 ITR 548, the Bombay High Court was required to construe the provisions of section 41(1) of the 1922 Act. This provision contained a proviso. This is how the Bombay High Court dealt with the proviso : "... But to that section there is this proviso viz., 'Provided that where any such income, profits or gains or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the transfer of a balance of an unrecognized provident fund to a recognized provident fund. This is the circumstance under which a situation would arise where an employee becomes taxable in respect of the contributions the provident fund. The Legislature has recognized that the liability to tax has arisen not because the taxpayer has earned anything more but because of technicalities like where an unrecognized provident fund gets recognition. 10. The accretion to the provident fund would also not be entirely within the control of the employees who are contributing thereto. Under rule 4, the trustees of the provident fund have to invest the contributions in trust securities and these trust securities on sale would give rise to capital gains and these capital gains are also considered part of the contributions. Thus, the assessee's share in a provident fund would increase for reasons which are not under his control. It would be seen, therefore, that the amount on which interest is to be calculated and credited is not an amount on which the employee has a control. It follows, therefore, that the interest credited thereon can exceed 1/3rd of the salary for circumstances w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such. 14. For these reasons, we are inclined to accept the submission that the word "or" should be construed conjunctively and only where interest allowed at the rates higher than the official rate and which interest had exceeded 1/3rd of the salaries, the said excess would be brought to tax under the rules. 15. Having disposed of the main ground, we will now refer to one or two subsidiary points taken by Shri Gupta. He submitted that the assessee had not claimed the exemption at the assessment and so there could not be any grievance in including these amounts in the assessment. We are unable to accept his submission that on this ground the appeal before the Commissioner (Appeals) was not competent. It is well settled that even though an item is offered for taxation before the ITO, the assessee could on advice claim later before the appellate authorities that the amount was not taxable. We do not think that the department's contention that the appeal is incompetent can be entertained. It was then submitted that in order to accept the assessee's contention, expression like "whichever is less" should also find a place in the rules. We have given examples from Maxwell and from th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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