Income Tax Appellate Tribunal - Chandigarh
Rockman Cycle Employees Welfare Trust vs Assistant Commissioner Of Income Tax ... on 7 January, 2004
Equivalent citations: (2005)92TTJ(CHD)927
ORDER
B.M. Kothari, A.M.
1. All these appeals were heard on 5th Jan., 2004 and 6th Jan., 2004, and involve consideration of identical point. All these appeals were represented by Shri Subhash Agarwal on behalf of the assessees and by Shri O.P. Bhaina on behalf of the Department. I, therefore, find it convenient to dispose of all these appeals by a common order.
2. All these trusts were created by various companies belonging to Hero group for the welfare of their respective employees. Most of these trusts were created vide trust deeds executed between the employer company and certain persons as trustees of the said trusts in the year 1982. These trusts had filed returns for various years and tax at normal rate applicable to AOP was accepted in the returns of income filed by them vide assessment/intimation prepared under Section 143(1). However, the AO from asst. yr. 1996-97 held that all these trusts are liable to pay tax at maximum marginal rate under Section 164(1) of the IT Act. Learned CIT(A) confirmed such action of the AO.
3. All these assessees have raised the common grounds in these appeals, as under :
"1. That the learned AO has wrongly framed the assessment of the trust as an AOP in terms of Section 164(1) instead of Clause (iv) of proviso to Section 164(1) as claimed by the assessee.
2. That in any case the AO has wrongly assessed the income of the assessee at maximum marginal rate."
4. Learned counsel appearing for the assessees submitted that Clause (iv) of the proviso to Section 164(1) is applicable in the cases of all these employees' welfare trusts. The said proviso clearly provides that if the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession, tax shall be charged on the relevant income as if it were the total income of an AOP. The learned counsel submitted that tax at normal rate should be levied in the cases of all these trusts under the aforesaid proviso. He also pointed out that the eligibility of the trusts to be taxed at normal rate under the aforesaid proviso (iv) to Section 164(1) has to be considered with reference to the fact when these trusts were created. He placed reliance on the decisions in the cases of Seth Keshrichand Khaitan Education & Welfare Trust v. CIT (1982) 138 ITR 351 (Cal) and CIT v. Chunilal Raichand Trust (1991) 189 ITR 631 (Bom). Learned counsel also contended that the returns submitted by all these trusts in the preceding years have been accepted under Section 143(1) and tax charged according to the normal rate applicable to AOP and not at maximum marginal rate. The facts pertaining to all these years are similar. He submitted that the rule of consistency provides that if the facts are similar, the earlier view taken on similar facts should be followed in subsequent years also. He relied upon the decisions in the cases of CIT v. ARJ Security Printers (2003) 264 ITR 276 (Del) and Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC). Learned counsel also drew my attention to the various clauses of the trust deeds to show that these trusts have been created exclusively for the purposes of the benefit of the employees of the cycle companies. Learned counsel also pointed out that some of these trusts in asst. yr. 1995-96 or other years have given interest-free loans to L. Bahadur Chand Munjal Charitable Trust. The said trust is running various schools in the city where the factories of the employees are located. The employees of the said companies receive preferential treatment in those schools. The said loan given to the said trust was also for the activities carried on in consonance with the object clause of these trusts. He also pointed out that in the initial years of creation of the trusts, the trusts had given loans to the various employees as is apparent from various charts given in relation to these trusts.
4.1 Learned counsel further submitted that the assessees' contention that these trusts should be charged to tax at normal rate is fully supported by the decisions in the cases of Bajaj Auto Employees' Welfare Fund v. ITO (1987) 27 TTJ (Pune) 64 and Lodge Hamilton 26 v. ITO (1996) 56 TTJ (Ahd) 407, to which I was also a party. He further invited my attention to para 7.4 of the said decision, in which reliance was placed on the Board's Circular dt. 11th Jan., 1982. Learned counsel thus submitted that the AO should be directed to charge tax at normal rate applicable to the AOP, in view of Clause (iv) of the proviso to Section 164(1) and tax charged by them at maximum marginal rate should be cancelled.
4.2 Learned Departmental Representative relied upon the reasons mentioned in the orders of the AO and the CIT(A).
5. I have carefully considered the submissions made by the learned Representatives of the parties and have gone through the orders of the learned Departmental authorities. I have also carefully gone through the various decisions relied upon by the learned counsel. The genuineness of the aforesaid trusts has not been doubted by the learned Departmental authorities in their respective orders. The proviso in Clause (iv) to Section 164(1) is extracted below for the sake of convenience :
"(iv) the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession."
All these trusts have been created exclusively for the benefit of the employees of the employer companies. Pursuant to a query by the Bench, the learned counsel submitted that four companies belong to Hero group and the number of employees welfare trusts created by all these four companies are as under :
Hero Cycle Ltd. and Majestic Auto Ltd. have created two trusts each for the welfare of their respective employees.
The distinction between those two trusts is that one welfare trust is meant for the employees getting salary beyond certain limits and the other for low-paid employees.
Highway Cycle Industries Ltd. and Rockman Cycle Industries Ltd. have created one trust each for the welfare of their employees.
Thus, in all six, employees welfare trusts have been created by the four companies of this group. It is not a case where the multiple or chain of employees welfare trusts have been created by the employer companies with a view to avoid payment of tax. These are the genuine trusts meant for the welfare of the employees.
5.1 It may be relevant here to reproduce the relevant extract from the Circular No. 320, dt. 11th Jan., 1982, issued by the Board, as under :
"... So far as cases where income is receivable by the trustees on behalf of an unrecognized provident fund or an unapproved superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession are concerned, they will continue to be charged to tax in the manner prescribed by Section 164(1)(iv) of the IT Act, as hitherto. Similarly, in the cases of registered societies, trade and professional associations, social and sports clubs, charitable or religious trusts, etc., where the members or trustees are not entitled to any share in the income of the AOP, the provisions of new Section 167A will not be attracted and, accordingly, tax will be payable in such cases at the rate ordinarily applicable to the total income of an AOP and not at the maximum marginal rate."
The assessee-trusts have been created for the welfare of the employees of the employers' companies which are within the ambit of expression 'any other fund created bona fide by a person carrying on a business exclusively for the benefit of persons employed in such business'. Clause (iv) of the proviso to Section 164(1) is clearly applicable to the facts of all these cases. Such a view is duly supported by the aforesaid circular issued by the Board. The submission made on behalf of the assessees that the tax on all these trusts should be charged at normal rate applicable to AOP and not at maximum marginal rate, is also supported by the decision in the case of Bajaj Auto Employees' Welfare Fund (supra). It should be appreciated that such employees' welfare trusts were created to ensure that the healthy relationship between the employer and the employees continues to remain at all the times. Various Courts have always considered sympathetically the claims made in relation to the welfare of the workers/employees. Even if it is considered that Clause (iv) of the proviso to Section 164(1) is capable of more than one view, the view which is favourable to the assessee should be adopted, as per the principles of law laid down by the apex Court in various cases.
5.2 On a careful consideration of the entire relevant facts, I am of the considered view that the tax should be levied on all these trusts at the normal rate and not at maximum marginal rate.
6. In the result, all the appeals of the assessees are allowed.