C/SCA/12659/2014 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 12659 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India, 1950 or any order made thereunder? 5 Whether it is to be circulated to civil judge? KPT EMPLOYEES WELFARE TRUST Petitioner(s) Versus COMMISSIONER OF INCOME TAX RAJKOT I Respondent(s) Appearance: MR TUSHAR P HEMANI, ADVOCATE for Petitioner(s) No. 1 MR PRANAV G DESAI, ADVOCATE for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 19 C/SCA/12659/2014 JUDGMENT Date : 22/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this petition, petitioner- Trust has challenged order passed by Office of Commissioner of Income-tax, Rajkot- 1, Rajkot, whereby, application of petitioner-Trust for registration under section 10(23AAA) of Income-Tax Act, has been rejected. 2. Learned advocate Mr. Hemani for petitioner trust has submitted that while considering application for registration under section 10(23AAA) read with Rule 16C(5), Commissioner has committed grave error in interpreting provisions of Act and Rules. petitioner has pointed out that Trust, Trust-deed, which is produced at Annexure-C, is constituted for benefit of employees of Kandla Port Trust (for short KPT ). words contribution and Beneficiar(y/ies) are interpreted as under: Contribution means amount contributed by members periodically and shall include any amount allocated and contributed by KPT. Page 2 of 19 C/SCA/12659/2014 JUDGMENT Beneficiar(y/ies) means member(s) of Trust who are serving and retired employee(s) of Kandla Port Trust and members of family/dependents (as defined by Government of India in their rules for their employees) of serving/ retired/deceased. 3. learned advocate for petitioner has submitted that clause 10, 11 and 46 of trust deed of Trust which are objected by Commissioner of Income Tax. Contribution by employer is main ground to reject in addition to following clauses, which read as under 10. To aid and promote educational and vocational learning facilities/ activities for serving employees and their children. 11. To advance as loan or stipend or grants to Beneficiaries for purpose of education at approved institutions as per criteria laid down by Board of Trustees. Page 3 of 19 C/SCA/12659/2014 JUDGMENT 46. Trust is irrevocable. However, under orders of Government of India, if Trust is revoked, all property, funds and assets remaining after payment of all debts and liabilities of Trust, shall be transferred to Kandla Port Trust. 4. Learned advocate for petitioner has submitted that provisions of section 23(AAA) and Rule 16(C) read as under: Sec. 23(AAA) any income received by any person on behalf of fund established, for such purposes as may be notified by Board in Official Gazette, for welfare of employees or their dependents and of which fund such employees are members if such fund fulfils following conditions, namely:- (a) fund- (i)applies its income or accumulates it for application, wholly and exclusively to objects for which it is established; and (ii) invests its funds and contributions and other sums received by it in forms or Page 4 of 19 C/SCA/12659/2014 JUDGMENT modes specified in sub-section(5) of section 11; (b) fund is approved by [Principal Commissioner or] Commissioner in accordance with rules made in this behalf. Provided that any such approval shall at any one time have effect for such assessment year or years not exceeding three assessment years as may be specified in order of approval;] Rule 16(C).(1) fund shall be formed under trust and it shall be evidenced by trust deed. (2) contributions to fund are to be made by employees by way of periodical subscription. (3) application for approval of any fund under clause (23AAA) of section 10 shall be made in Form No. 9 to Commissioner having jurisdiction over area or territory in which accounts are kept and such application shall be accompanied by documents mentioned therein. (4) Where Commissioner is satisfied that all conditions laid down in clause (23AAA) of section 10 Page 5 of 19 C/SCA/12659/2014 JUDGMENT are fulfilled in case of fund, he shall record such satisfaction in writing and grant approval to fund specifying assessment year or years for which approval is valid so however that such approval shall, at one time, have effect for such assessment year or years not exceeding three assessment years. (5) Where Commissioner is satisfied that one or more of conditions laid down in clause (23AAA) of section 10 are not fulfilled, he shall reject application for approval after recording reasons for such rejection in writing. 5. It is very clear that word contribution is mandatory for contribution to be made by employees. interpretation put forward by Commissioner that employer can t make any payment for corpus, is misconceived. Mr. Hemani learned advocate for petitioner has relied upon meaning of word contribution . meaning of word contribution in Black s Law Dictionary, reads as under: Contribution. (14c)1. right that gives one of several persons who are liable on common debt ability to Page 6 of 19 C/SCA/12659/2014 JUDGMENT recover proportionately from each of others when that one person discharges debt for benefit of all; right to demand that another who is jointly responsible for third party s injury supply part of what is required to compensate third party.- Also termed right of contribution. [Cases: Contribution]. 2. One tortfeasor s right to collect from joint tortfeasors when- and to extent that- tortfeasor has has paid more than his or her proportionate share to injured party, shares being determined as percentages of casual fault. [Cases: Contribution]. 3. actual payment by joint tortfeasor of proportionate share of what is due. Cf. INDEMNITY. 4. Maritme law. share of loss resulting from ship s sacrifice of cargo, payble by each party whose property was spared to party whose property was sacrificed.5 WHAR CONTRIBUTION. 6. Mr. Hemani learned advocate for petitioner has relied on decision of Hon ble Supreme Court in case of N.K. Jain and others v. C.K. Shah and others, reported in AIR 1991 SC 1289, to buttress submission that word contribution is not restricted to only employers contribution and that object of section be given proper interpretation, wherein, Hon ble Supreme Court has held in para-16 as under: Page 7 of 19 C/SCA/12659/2014 JUDGMENT 16. After careful consideration we are inclined to agree with learned counsel for respondents. In this context we may note passage in Knightsbridge Estates Trust Ltd. v. Byrne and Others, [1940] 2 All ER 401 which reads thus: "It is perhaps worth pointing out that words "unless context otherwise requires" which we find in consolidating Act of 1929 are not to be found in amending Act of 1928. I attribute little weight to this fact, for, in my opinion, some such words are to be implied in all statutes where expressions which are interpreted by definition clause are used in number of sections with meanings sometimes of wide, and sometimes of obviously limited, character. On other hand, I think due weight ought to be attributed to words "otherwise requires" in Companies Act, 1929, and it is incumbent on those who contend that definition does not apply to sect. 74 to show with reasonable clearness that context does in fact require more limited interpretation of word "debenture" then Sect. 380 has assigned to it." Page 8 of 19 C/SCA/12659/2014 JUDGMENT Apex Court has further held that; In National Buildings Construction Corporation v. Pritam Singh Gill and Others, [ 1973] 1 SCR 40 this Court observed as under: "As is usual with most of definition sections, with clause, "unless there is anything repugnant in subject or context. " This clearly indicates that it is always matter for argument whether or not this statutory definition is to apply to word "workman" as used in particular clause of Act which is under consideration, for this word may both be restricted or expanded by its subject matter. context and subject matter in connection with which word "workman" is used are accordingly important factors having bearing on question. propriety or necessity of thus construing word "workman" is obvious because all parts of Act have to be in harmony with statutory intent." (emphasis supplied) In Bennett Coleman & Co. (P) Ltd. v. Punya Priya Das Gupta, [1970]I SCR 181 this Court observed thus: "But assuming that there is such conflict as contended, we do not have to resolve that conflict for purposes of problem before Page 9 of 19 C/SCA/12659/2014 JUDGMENT us. definition of s. 2 of present Act commences with words "In this Act unless context otherwise requires" and provides that definitions of various expressions will be those that are given there. Similar qualifying expressions are also to be found in Industrial Disputes Act, 1947, Minimum Wages Act, 1948, C.P. & Berar Industrial Disputes Settlement Act, 1947 and certain other statutes dealing with industrial questions. It is, therefore, clear that definitions of "a newspaper employee" and "a working journalist" have to be construed in light of and subject to context requiring otherwise." above passages throw flood of light on scope of interpretation of these opening words of Section 2 and it is clear that they must be examined in light of context, title, preamble and all other enacting parts of statute. Due weight ought to be given to words "unless context otherwise requires". subject matter and context in which particular word is used are of great importance and it is axiomatic that object underlying Act must always be kept in view in construing context in which particular word is used. In Statement of Object Page 10 of 19 C/SCA/12659/2014 JUDGMENT and Reasons of Act No. 40 of 1973 by which Section 14(IA) was introduced, it is clearly mentioned that National Commission of Labour has recommended that in order to check growth of arrears, penalties for defaults in payment of provident fund dues should be more stringent and default should be made cognizable. concept which prompted Legislature to enact this welfare law should also be borne in mind in interpretation of provisions. Chagla, C.J. in Prakash Cotton Mill. (P) Ltd. v. State of Bombay, [1957]2 LLJ 490 observed as under: "No Labour legislation, no special legislation, no economic, legislation, can be considered by court without applying principles of social justice in interpreting provisions of these laws. Social justice is objective which is embodied and enshrined in our Constitution ..... it would indeed be startling for anyone to suggest that court should shut its eyes to social justice and consider and interpret law as if our country had not pledged itself to bringing about social justice." In Kanwar Singh v. Delhi Administration, [1965] 1 SCR 7 it was observed as under: "It is duty of court in construing statute to give Page 11 of 19 C/SCA/12659/2014 JUDGMENT effect to intention of legislature. If, therefore, giving literal meaning to word used by draftsman, particularly in penal statute, would defeat object of legislature, which is to suppress mischief, court can depart from dictionary meaning or even popular meaning of word and instead give it meaning which will advance remedy and suppress mischief." In Vanguard Fire & Gen. Ins. Co. v. Fraser & Ross, AIR 1960 SC 1971 it was held that "the Court has not only to look at words but also at context, collocation and object of such words and interpret meaning intended to be conveyed by use of words under circumstances" 7. Mr. Hemani learned advocate for petitioner has also relied on decision of Hon ble Supreme Court, to bring home submission that contribution by employer in case of authority created under Central or State Government legislation is not excluded and is inclusive, in case of Municipal Corporation of Delhi v. Children Book Trust, reported in AIR 1992 SC 1456, wherein, Hon ble Supreme Court has held in para-81 as Page 12 of 19 C/SCA/12659/2014 JUDGMENT under: 81. word contribution used in provisio must also be given its due meaning. It cannot be understood as donations. If that be so, voluntary contribution cannot amount to compulsive donation. If donor, in order to gain advantage or benefit, if he apprehends that but for contribution some adverse consequence would follow, makes donation certainly it ceases to be voluntary. 8. Mr. Hemani learned advocate for petitioner has further contended that apprehension which has been put forward by Commissioner is misconceived. He has taken us through clauses as interpreted by Commissioner, being as under and according to Mr. Hemani, it is arbitrary and without basis and contrary to object of Trust and Income Tax Act. As per notification No. SO 672(E) dated 27.7.1995- Page 13 of 19 C/SCA/12659/2014 JUDGMENT (1) cash benefits to member of fund,- (a) on superannuation, or (b) in event of his illness or illness of his spouse or dependent children, or (c) to meet cost of education of his dependent children; or (2) cash benefits to dependents of member of fund in event of death of such member. As per notification no. 33/11 dated 3.6.2011- In said notification, in paragraph (1), after clause (c), following clause shall be interested, namely:- (d) to meet cost of annual medical tests or medical checkups of members, his spouse and dependent children. 9. Mr. Hemani learned advocate for petitioner has also submitted that CBDT has itself given guidelines and clauses, and Trust is governed by both these clauses of CBDT instructions. 10. Learned advocate Mr. Pranav G. Desai Page 14 of 19 C/SCA/12659/2014 JUDGMENT appearing for respondent has pointed out from trust deed that definition of beneficiaries includes all members who are serving and retired employees and members of family or dependents of serving and retired and deceased employees. definition of member clearly provides that members are serving and retired employees of trust. From provisions of creation and establishment of trust, it is clearly established that amount of Rs. 10 lacs has been paid by Kandla Port Trust to concerned petitioner trust. It also provides subsequent payment as deem fit. Further, it is stated that amount shall be utilised for purpose of managing, controlling, utilizing and disposing of said fund/property for benefits and welfare of beneficiaries. 11. It is further borne out that for purpose of trust, it clearly provides that trust is formed to provide better health care and educational aid to serving and retired employees of trust and to members of family/dependents of serving/retired/ deceased needing such help, and therefore, he supported order of Commissioner. Even perusal of aims and object of trust, it clearly provides for all benefits to beneficiaries and creates class among Page 15 of 19 C/SCA/12659/2014 JUDGMENT equals. It is clear from reading that certain clause of aims and object of trust is not in consonance with purpose of Income Tax Act for claiming benefit under section 10(23AAA), particularly, clause 10 of aims and object of trust in order Annexure-A passed under Rule 16C(5) of Income Tax Rules, 1962 read with section 10 (23AAA) of Income Tax Act. In para 2, provisions of trust deed has been duly gone into and after considering provisions of trust deed, relevant aspects were duly noted and show cause notice for explanation was sent, however, petitioner failed to satisfy same, particularly, with regard to contribution, defence and manner of accepting contribution, but aims and objectives of trust are not in consonance with objects notified under said Section, even clause for revocation of trust i.e. clause 46 is also considered in order Annexure A. Said clause in beginning indicates that trust is irrevocable, however, later part of it provides that trust if revoked and after payment of all debts and liabilities of trust, shall be transferred to Kandla Port Trust. Even clause 46 is also not in consonance with creation/establishment of trust, which is stated in clause 1 where it is specifically provided that all property Page 16 of 19 C/SCA/12659/2014 JUDGMENT fund etc. completely vest into trust and same should only be utilized and applied for purpose of benefits and welfare of beneficiaries only. Mr. Desai further contended that very object of Trust is frustrated. He further pointed out that section 23AAA will exempt them from income tax and word contribution as interpreted by learned advocate for petitioner is not accepted since employer cannot contribute. He further contended that there is discrimination between retired employees and employees working. IN that view of matter, he submitted that Commissioner has rightly rejected application of petitioner. He has relied upon word beneficiaries which is reproduced hereinabove. He has also relied upon clause 14 which reads as under: 14. Trust shall have periodic contributions from its members to its fund. It can also receive and accept gifts, grants, aids, donations, benefactions of any nature and kind whatsoever for purpose of fulfilling its objects besides contributions from KPT. 12. Mr. Desai learned advocate for respondent-authority has contended that Page 17 of 19 C/SCA/12659/2014 JUDGMENT order passed by Commissioner is right and petition deserves to be dismissed. 13. While appreciating facts and interpreting law on point, it is clear that very object of trust is to see that employees may not have to lend their hands before any person for money at higher rate of interest from outsider, and for that, trust is created. If we go through clauses no. 7 and 10, as referred to hereinabove, they are in consonance with guidelines issued by CBDT. On close scrutiny of word contribution , it pre- supposes contribution of employee is mandatory and other contribution by employer in any form is acceptable. finding of Commissioner is bad in law and against provision. In that view of matter, in our view, Commissioner has wrongly interpreted Rule 16(C) of Income Tax Rules. In that view of matter, interpretation put forward by Commissioner is required to be rejected. 14. apprehension which has been emphasized by Mr. Desai learned advocate for respondent that fund, on dissolution of Trust, will go to Kandla Port Trust, in our view, till last beneficiary of Trust remain in existence. However, only with Page 18 of 19 C/SCA/12659/2014 JUDGMENT order Central Government, Trust can be dissolved and amount remained with Trust will go back to Statutory Authority i.e. Kandla Port Trust. Therefore, in facts and circumstances of case, clauses are not objectionable. 13. In premise, present petition is allowed. impugned order dated 26.3.2014 passed by Commissioner of Income Tax, Rajkot-1, Rajkot, Annexure-A to present petition, is quashed and set aside. Commissioner of Income-Tax, Rajkot-1, Rajkot is directed to grant approval to petitioner-Trust on or before 31.1.2015, from date on which they made application. Rule is made absolute. No order as to costs. (K.S.JHAVERI, J.) (K.J.THAKER, J) mandora Page 19 of 19 KPT Employees Welfare Trust v. Commissioner of Income-tax Rajkot I