Dishman Group Of Companies Employees ... vs Secretary Central Board Of Direct Taxes ... on 5 May, 2014

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Gujarat High Court

Dishman Group Of Companies Employees ... vs Secretary Central Board Of Direct Taxes ... on 5 May, 2014

Bench: Sonia Gokani

          C/SCA/6539/2010                                   JUDGMENT




            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

               SPECIAL CIVIL APPLICATION NO. 6539 of 2010



FOR APPROVAL AND SIGNATURE:


HONOURABLE MR.JUSTICE AKIL KURESHI


and


HONOURABLE MS JUSTICE SONIA GOKANI

================================================================

1     Whether Reporters of Local Papers may be allowed to see
      the judgment ?

2     To be referred to the Reporter or not ?

3     Whether their Lordships wish to see the fair copy of the
      judgment ?

4     Whether this case involves a substantial question of law as
      to the interpretation of the Constitution of India, 1950 or any
      order made thereunder ?

5     Whether it is to be circulated to the civil judge ?

================================================================
  DISHMAN GROUP OF COMPANIES EMPLOYEES SUPERANNUATION
                    SCHEME....Petitioner(s)
                         Versus
 SECRETARY CENTRAL BOARD OF DIRECT TAXES & 1....Respondent(s)
================================================================
Appearance:
MR TUSHAR P HEMANI, ADVOCATE for the Petitioner(s) No. 1
MR MANISH BHATT, LD.SENIOR COUNSEL WITH MRS MAUNA M BHATT,
ADVOCATE for the Respondent(s) No. 1 - 2
================================================================

        CORAM: HONOURABLE MR.JUSTICE AKIL

                                  Page 1 of 20
    C/SCA/6539/2010                           JUDGMENT



                KURESHI
                and
                HONOURABLE MS JUSTICE SONIA
                GOKANI

                     Date : 05/05/2014


                     ORAL JUDGMENT

(PER : HONOURABLE MS JUSTICE SONIA GOKANI)

1. The petitioner challenges the order passed by the Central Board of Direct Taxes, New Delhi (hereinafter referred to as 'the CBDT') dated November 17, 2009 in the following factual background :

1.1 The petitionerDishman Group of Companies introduced an Employees' Superannuation Scheme (hereinafter referred to as 'the Fund') for the benefit of the employees. The petitioner created collectively the Fund of the employees of the Dishman Pharmaceuticals and Chemicals Pvt. Ltd., Shutz Dishman Biotech Limited and B.R. Laboratories Limited, which are engaged in the business of trading and manufacturing of bulk drugs and fine chemicals.

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C/SCA/6539/2010 JUDGMENT 1.2 These three group of companies created the Fund with effect from April 01, 2007 as per the Trust Deed dated October 25, 2007 for the benefit of certain class of the employees. The application was submitted to the Commissioner of Incometax, RangeI on October 27, 2007 for approval of the Fund to take effect from the date of its inception i.e. April 01, 2007. Such application was made under Rule 2(1) of Part B of Schedule IV of the Incometax Act, 1961 (hereinafter referred to as 'the Act'). 1.3 A show cause notice was issued by the respondent No.2 on September 01, 2008 and the date of hearing was given of September 16, 2008. Queries raised in such notice were answered by way of communication dated October 07, 2008 and reasons were sought for from the Chartered Accountant for not rejecting the application on the ground of noncompliance of the condition laid down in Rule 3(c) of Part B of Schedule IV of the Act, particularly raising the query that there was no contribution from Page 3 of 20 C/SCA/6539/2010 JUDGMENT the employer. It is averred by the petitioner that due to inadvertence such query was not replied to and, therefore, rejection came on October 20, 2008.

1.4 Fresh application was moved on January 02, 2009 for all the three group of companies, which was acknowledged on January 12, 2009 and for Schutz Dishman Biotech Limited such approval was granted on March 03, 2009 with effect from the date of inception of the Fund i.e. 1st April, 2007, however, for other companies, such application was made on May 18, 2009 and the respondent No.2 passed an order on May 27, 2009 granting approval from January 12, 2009 i.e. from the date of the application. 1.5 A rectification application was moved on June 09, 2009, requesting to rectify the order by according approval with effect from April 01, 2007. Such application was rejected on July 21, 2009, without grant of any hearing. Page 4 of 20

C/SCA/6539/2010 JUDGMENT 1.6 The appeal was preferred on July 24, 2009, challenging the order of the respondent No.2 before the respondent No.1CBDT, where the petitioner was asked to furnish substantiating evidence to support that during the initial proceedings the evidence with regard to employers' contribution was filed. The petitioner's request for approval of the Fund from the date of inception was not accepted to by the respondent No.1. The appeal was rejected on November 17, 2009 and, therefore, the present petition is preferred challenging the said order passed under subrule (1) of Rule 8 of Part B of Schedule IV of the Act.

2. On issuance of Rule, an affidavitinreply has been furnished inter alia contending that the request made by the petitioner cannot be acceded to as the application of the petitioner was rejected on the ground that there was non compliance of Rule 3(c) of Part B of Schedule IV of the Act since the petitioner has failed to comply with the queries raised by the Department. Page 5 of 20

C/SCA/6539/2010 JUDGMENT It is further contended that the order passed on May 27, 2009 according approval to the superannuation scheme has to take effect from January 12, 2009 as that is the date on which the application is moved, completing all required necessities as required by the law. The first application's rejection was on account of failure on the part of the petitioner to adduce necessary documents. It is further contended that the first application when was moved by the petitioner, the show cause notice which was issued was with a request to show cause as to why the application dated November 05, 2007 be not rejected on the ground of nonmaintainability of the application as well as on account of noncompliance with the conditions of approval as prescribed under the law and on October 16, 2008 there was non compliance and, therefore, when it was found that the application did not meet with the important conditions necessary for approval of the superannuation fund, his application needed to meet with rejection.

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C/SCA/6539/2010 JUDGMENT

3. Additional affidavit and additional affidavitin reply have also been furnished.

4. Learned counsel Mr.Hemani appearing for the petitioner has fervently urged that the respondent No.2 while dealing with the first application could not have rejected the same on merits once having held that the same was not maintainable. He further urged that all requisite documents necessary for the purpose of grant of approval were already before the concerned authority and, therefore also, such rejection could not have come. It is further urged that when the employer had made the contribution from the inception substantiated by the bank documents and also the copy of the statement issued by the ICICI Prudential Life Insurance, which handled this Fund for and on behalf of the petitioner, the Court needs to interfere.

5. Per contra, the learned Senior Counsel Mr.Manish Bhatt appearing for the Department, has urged that the petitioner as such has already been Page 7 of 20 C/SCA/6539/2010 JUDGMENT granted approval for the said Fund from the date of application and, therefore, any request to make it effective from the date of inception when no substantiating documents were furnished, need not be entertained. He further urged that the successive separate application filed in January, 2009 could not be termed as extension of earlier application. It is also the case of the Revenue that the application dated October 26, 2007, which was rejected on the ground of nonmeeting with the conditions of the Rules, could not be treated as pending for deciding any subsequent application and particularly, the application which had been rejected earlier.

6. On thus hearing both the sides and on examination of the material on record, so also considering the law on the subject, the application preferred on January 02, 2009 whether can be given an effect from the date of first application i.e. October 26, 2007, shall have to be considered. 6.1 At this stage, firstly the provision with Page 8 of 20 C/SCA/6539/2010 JUDGMENT regard to approval of the superannuation fund or any part of the superannuation fund shall have to be regarded as provided under Rule 2(1) of Part B of Schedule IV of the Act. The Chief Commissioner or Commissioner may accord such approval of the superannuation fund, which in his opinion, complies with the requirement of Rule 3 and he may also at any time withdraw such approval, if, in his opinion, the circumstances of the fund or part cease to warrant the continuance of the approval. 6.2 In order that the superannuation fund may receive or retain approval, there are certain conditions stipulated, which need satisfaction.

Rule 3 provides for such conditions, which require profitably the reproduction as under :

"Conditions for approval.

3. In order that a superannuation fund may receive and retain approval, it shall satisfy the conditions set out below and any other conditions which the Board may, by rules, prescribe Page 9 of 20 C/SCA/6539/2010 JUDGMENT

(a) the fund shall be a fund established under an irrevocable trust in connection with a trade or undertaking carried on in India, and not less than ninety per cent of the employees shall be employed in India;

(b) the fund shall have for its sole purpose the provision of annuities for employees in the trade or undertaking on their retirement at or after a specified age or on their becoming incapacitated prior to such retirement, or for the widows, children or dependents of persons who are or have been such employees on the death of those persons;

(c) the employer in the trade or undertaking shall be a contributor to the fund; and

(d) all annuities, pensions and other benefits granted from the fund shall be payable only in India."

6.3 Rule 4 provides for an application for approval of superannuation fund in writing by the Trustees of the Fund to the Assessing Officer, by whom the employer is assessable and it is to be accompanied by a copy of the Page 10 of 20 C/SCA/6539/2010 JUDGMENT instrument under which the fund is established. 6.4 Rule 5 provides that contribution by the employer in certain conditions is deemed to be the income of the employer. Determination of tax on the contribution made by the employer including interest on the contribution, is to be deducted at an average at which employee is liable to pay when he was a member of the Fund and is to be paid by the Trustees to the credit of the Central Government within the prescribed time. In the event of any objection to the order of the Chief Commissioner or Commissioner for refusal in according approval or of the withdrawal of such approval, an appeal is provided under Rule 8 to be preferred within 60 days to the Board.

6.5 It can, thus, be noticed that the employer for the approval of the superannuation fund requires to make in writing an application to the Assessing Officer and such application when made needs to meet with certain conditions for Page 11 of 20 C/SCA/6539/2010 JUDGMENT the same to be approved. One of the vital conditions for such approval is that the employer in the trade shall be a contributor to the fund.

6.6 Reverting to the facts of the present case, the petitioner herein firstly made an application on October 26, 2007 before the Commissioner of Incometax for approval of the Fund under Rule 2(1) of Part B of Schedule IV of the Act. Such application when was moved, the hearing was fixed on September 16, 2008 for hearing of the show cause notice issued on September 01, 2008. On account of non compliance of the condition of Rule 3(c) of adducing the evidence of the employer having contributed to the fund, such show cause notice was issued. The Commissioner of Incometax vide order dated October 20, 2008 passed under Rule 2 of Part B of Schedule IV of the Act rejected such an application on the ground that two of the three employers were not being assessed by such Commissioner and, therefore, a composite Page 12 of 20 C/SCA/6539/2010 JUDGMENT application for a group of companies was not maintainable. Yet another ground raised in the correspondence effected to the Chartered Accountant, to which the Commissioner did not get reply, was in respect of contribution made by the employer. Therefore, both on the ground of nonmaintainability and on the ground of conditions specified in Rule 3(c) of Part B of Schedule IV of the Act, not having been complied with, such application was rejected. The petitioner made yet another application on January 02, 2009. They made separate applications for approval of Fund to the respective commissionerate for the companies urging therein that the employer had contributed a predetermined sum every month as per Clause 7 of the Trust Deed dated October 25, 2007. Such contribution had come from the employer towards the Fund from the very inception and, therefore, a request was made to approve the said Fund with effect from the date of inception of the Fund. We notice that as far as one of the companies i.e. Schutz Page 13 of 20 C/SCA/6539/2010 JUDGMENT Dishman Biotech Limited is concerned, the Commissioner of Incometax, AhmedabadV, granted such an approval with effect from October 25, 2007, subject to fulfilling all the conditions laid down under Rule 3 of Part B of Schedule IV of the Act. However, with regard to other two companies, which are the petitioners before this Court, the approval has been granted by the Commissioner of Incometax, AhmedabadI, with effect from January 12, 2009 i.e. from the date of subsequent application. 6.7 In the subsequent correspondence, a request has been made by the petitioner for according approval from April 01, 2007, the date on which the contribution was made and superannuation fund was established, however, such request was not acceded to. Therefore, the appeal was preferred against such refusal to approve from the date of original application. The CBDT vide order dated November 17, 2009 rejected the appeal on the ground that the first application moved by the petitioner came to be rejected by Page 14 of 20 C/SCA/6539/2010 JUDGMENT the Commissioner of Incometax on October 20, 2008 and the same was not pending. Therefore, the same could not have been either extended or revived. The subsequent application, according to the CBDT, was a fresh request under Rule 2(1), Part B of Schedule IV of the Act. The CBDT was of the opinion that if earlier application did not present correct facts due to unintentional error or misunderstanding as claimed by the petitioner, the appeal could have been preferred before the CBDT within 60 days. No such appeal was preferred against the order of the first application and, therefore, the findings of the Commissioner dated October 20, 2008 had attained finality under Schedule IV of the Act. It also concluded consequently that, therefore, the reasons given with regard to nonmaintainability of the application and nonobservance of Rule 3(c) of Part B of Schedule IV, remained unchallenged by the petitioner and, therefore, in the subsequent order dated May 27, 2009, no challenge can be made to the findings given in the first order Page 15 of 20 C/SCA/6539/2010 JUDGMENT dated October 28, 2008.

Such findings in our opinion cannot be sustained for the reasons that the Commissioner as could be noticed from the order dated October 28, 2008, rejected the application of the petitioner on both the counts, namely, non maintainability of the petition as well as for the petitioner not having furnished necessary proof of complying with condition 3(c) of the Rules. The Commissioner, if, was of the opinion that the consolidated application by the group of companies was not maintainable as the two of the petitioners were not assessable by him, on that count when the petition was found not to be maintainable, nothing ought to have been said by him on merit. He could not have chosen to do both i.e. hold it nonmaintainable and yet decide the application and reject the same on merits on the ground that the condition for approval was not complied with. Therefore, the Board when estopped the petitioner from challenging such order in the subsequent Page 16 of 20 C/SCA/6539/2010 JUDGMENT application for the Commissioner not having accorded the approval from its initial application, in our opinion, the interference of this Court is necessary.

6.8 We notice that the stand of the petitioner had been that when the first application was moved due to inadvertence on the part of the Chartered Accountant, the documents supporting contribution of the employer could not be placed on record, however, in the subsequent application preferred before the Commissioner, not only the request was made to accord such an approval from the date of having set up the Fund with contribution, but there was voluminous record to substantiate such request by way of bank statement, the detailed statement from ICICI Prudential Life Insurance, etc. Had it been a case where the Commissioner on the ground of nonfurnishing of the documents rejected the application at the relevant point of time, the question would have been debatable as to whether in a subsequently Page 17 of 20 C/SCA/6539/2010 JUDGMENT preferred application, the request on the part of the petitioner to accord approval from the inception could have been granted by the Commissioner ? We would not enter into that arena at this stage because, in our opinion, from the facts and circumstances of the case presented before us, such answer is simpler. The Commissioner, as noted above on having noted that the application preferred initially needed to be rejected on the ground of the same being nonmaintainable, could not have decided on merits the subsequent application seeking approval of the Commissioner from the very inception of the setting up the Fund in the wake of such voluminous documents ought to have been granted. There is no dispute on the part of the Revenue that such contribution on the part of the petitioner had already been made at the time of setting of the Fund. We could also notice that before the Commissioner the contribution details to superannuation scheme made with cheques received towards the contribution, has been furnished by the ICICI Page 18 of 20 C/SCA/6539/2010 JUDGMENT Prudential Life Insurance. They are also correspondingly substantiated by the details of the Bank furnished in the form of Bank statements and such statements tally with the consolidated statements furnished before both, the Commissioner and the Board. Therefore, by the employer and the Board of the Trustees of the Trust, when has contributed and has complied with the condition of the approval as required under the law, the request made by the petitioner for grant of such approval from the date of inception deserves to be allowed quashing and setting aside the order passed in appeal by the respondent No.1Board. Accordingly, the order dated November 17, 2009 passed by the respondent No.1 is hereby quashed and set aside. The respondent No.2 consequently is directed to accord approval to the superannuation fund set up by the petitioner with effect from its inception i.e. April 01, 2007. The petition is, accordingly, allowed. Rule is made absolute to Page 19 of 20 C/SCA/6539/2010 JUDGMENT the aforesaid extent. There shall be, however, no order as to costs.

(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) Aakar Page 20 of 20

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