Commissioner of Wealth-tax vs Kerala State Road Transport Corporation General Provident Fund Trust

P.C. Balakrishna Menon, J.—The Income Tax Appellate Tribunal, Cochin Bench, has referred the following questions for the decision of this court u/s 27(1) of the Wealth-tax Act, 1957 :

"(1) Whether, on the facts and in the circumstances of the case, the provident fund held by the assessee-trust could be considered as one to which the Provident Funds Act, 1925, applied by reason of the notification dated September 8, 1977, made by the Kerala State Government ?

(2) Whether, on the facts and in the circumstances of the case, the assessee-trust would be entitled to exemption from wealth-tax in respect of the properties held by it u/s 5(1)(xviib) of the Wealth-tax Act, 1957?

(3) If questions Nos. 2 and 3 are answered in the negative, whether, on the facts and in the circumstances, assessments are to be made u/s 21(1) of the Wealth-tax Act and not u/s 21(4) thereof ?

(4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amounts standing to the credit of each of the subscribers in the provident fund held by the assessee-trust would be exempt from wealth-tax u/s 5(1)(xvii) of the Wealth-tax Act, 1957?"

The assessee is the Kerala State Road Transport Corporation General Provident Fund Trust (hereinafter referred to as "the trust") and the assessment relates to the wealth-tax for the assessment years from 1967-68 to 1975-76. The Wealth-tax Officer passed orders of assessment u/s 21(4) of the Wealth-tax Act overruling the objection of the assessee-trust that the contributories to the provident fund, namely, the employees of the KSRTC are determinate persons and the assessment can only bounder Section 21(1) of the Act. The Appellate Assistant Commissioner confirmed the orders of assessment. During the pendency of the appeals, a notification u/s 8(3) of the Provident Funds Act, 1925, was published in the Gazette dated October 4, 1977. The contention raised on behalf of the assessee-trust that the provident fund is wholly exempt from wealth-tax u/s 5(1)(xviib) of the Wealth-tax Act by reason of the said notification was not accepted by the Appellate Assistant Commissioner. In further appeal, the Income Tax Appellate Tribunal has come to the conclusion that the provident fund trust is wholly exempt from wealth-tax by reason of the notification aforesaid and, even if it is exigible to wealth-tax, the assessment can only be u/s 21(1) of the Act.

We had occasion to consider the nature and functions of the trust in ITR Nos. 259 to 264 of 1980 on a reference made by the same Tribunal in the matter of assessment of the trust to Income Tax. The trust had taken over the General Provident Fund of the employees of the KSRTC with effect from January 5, 1967. The employees contribute part of their salary to the provident fund administered by the trust. There is no contribution by the employer. The contributions to the provident fund by the employees are to be returned to them with interest at the time of their retirement. We have, in our judgment, in the aforesaid reference cases, held that the individuals who contribute to the provident fund account are persons determinate and known and, for that reason, we have held that the income accrued by way of interest on deposit of the provident fund is not assessable in the hands of the assessee-trust u/s 164 of the Income Tax Act and that the assessment can only be u/s 161(1) . If, therefore, it is to be held that the trust can be assessed to wealth-tax, the assessment can only be u/s 21(1) and not u/s 21(4) of the Wealth-tax Act. As per Section 21(1), the trust can be assessed as representative of the persons on whose behalf and for whose benefit the trust holds its assets. Since the shares of the persons on whose behalf the trust is holding the fund are determinate and known, Sub-section (4) of Section 21 can have no application in the matter of assessment of the trust to wealth-tax.

The most substantial question raised by the assessee-trust and upheld by the Tribunal is the one relating to the exemption of the provident fund u/s 5(1)(xviib) of the Wealth-tax Act. The relevant provision of Section 5(1) of the Act is extracted below :

"Subject to the provisions of Sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee--...

(xviib) any property held by the trustees on behalf of any provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies or which is a recognised provident fund within the meaning of clause (38) of Section 2 of the Income Tax Act. "

The assessee has no case that the provident fund is one recognised u/s 2(38) of the Income Tax Act. There is also no dispute that the Provident Funds Act, 1925, did not apply during the relevant period, but for the notification by the Government of Kerala u/s 8(3) of the Provident Funds Act published in the Gazette dated October 4, 1977. Sub-sections (1), (2) and (3) of Section 8 of the Provident Funds Act, 1925, are extracted below :

"(1) The appropriate Government may, by notification in the Official Gazette, direct that the provisions of this Act shall apply to any Provident Fund established for the benefit of its employees by any local authority within the meaning of the Local Authorities Act, 1914, and, on the making of such declaration, this Act shall apply accordingly, as if such Provident Fund were a Government Provident Fund and such local authority were the Government.

(2) The appropriate Government may, by notification in the Official Gazette, direct that the provisions of this Act shall apply to any Provident Fund established for the benefit of the employees of any of the institutions specified in the Schedule, or of any group of such institutions, and, on the making of such declaration, this Act -shall apply accordingly, as if such Provident Fund were a Government Provident Fund and the authority having custody of the Fund were the Government:

Provided that Section 6 shall apply as if the authority making the contributions referred to in that section were the Government.

(3) The appropriate Government may, by notification in the Official Gazette, add to the Schedule the name of any public institution it may deem fit, and any such addition shall take effect as if it had been made by this Act."

The notification issued by the Government of Kerala u/s 8(3) is produced as annexure C in these proceedings. The notification is in two parts and it reads :

"S.R.O. No. 902/77.--In exercise of the powers conferred by Sub-section (3) of Section 8 of the Provident Funds Act, 1925 (Central Act 19 of 1925), the Government of Kerala hereby add to the Schedule to the said Act, the following public institution, namely :--

" The Kerala State Road Transport Corporation. "

II

S.R.O. No. 903/77.--In exercise of the powers conferred by Sub-section (2) of Section 8 of the Provident Funds Act, 1925 (Central Act 19 of 1925), the Government of Kerala hereby direct that the provisions of the said Act shall apply to the Provident Fund established for the benefit of the employees of the Kerala State Road Transport Corporation which has been added to the Schedule to the said Act. "

The notification came into force on its publication in the Gazette on October 4, 1977. The assessment in these cases relates to periods prior to the notification. The argument on behalf of the assessee is based on Sub-section (3) of Section 8 of the Provident Funds Act that the addition of the KSRTC in the Schedule to the Act takes effect from the very commencement of the Provident Funds Act by reason of the expression in Sub-section (3) that "such addition shall take effect as if it had been made by this Act".

The notification, annexure C, makes the Provident Funds Act, 1925, applicable to the provident fund established for the benefit of the employees of the KSRTC and it can have effect only with reference to the date of the notification. We are clearly of the view that the notification has no retrospective effect. The expression in Sub-section (3) of Section 8 of the Provident Funds Act "as if it had been made by this Act" can have application only with effect from the date of the notification. There is nothing in Sub-section (3) to authorise the Government to make a notification retrospective, nor has the Government purported to issue a notification with retrospective effect. In M. Manickchand and Others Vs. Elias Saleh Mohamed Sait and Another, the Supreme Court had to consider the effect of the expression "after the commencement of this Act" occurring in Section 2(3) of the Usurious Loans Act, 1918. The Act was extended to the Bangalore Civil and Military Station with effect from April 1, 1937, by the Civil and Military Station of Bangalore (Application of Laws) Order, 1937. Whether the Act which had come into force in other areas from 1918 onwards, can have application in respect of a mortgage executed in the area of the Bangalore Civil and Military Station in 1933 was the question that came up for decision before the Supreme Court. The commencement of the Act with reference to the area to which it was extended was held to be with effect only from the date on which the notification came into force. The Supreme Court stated at page 761 :

" Obviously, an Act can only commence in a particular area on the date on which that Act comes into force in that area. The mere fact that it was in operation in other areas will not result in the Act having commenced in the area where it had not yet been applied. "

We have, therefore, no doubt, in our minds that the notification adding the KSRTC in the Schedule to the Provident Funds Act can have effect only from the date of the notification and it can have no retrospective effect merely for the reason of the expression in Section 8(3) "as if it had been made by this Act". That expression only means that once a notification has come into force, the addition thereunder in the Schedule to the Act shall take effect as if it had been in the Act itself. Shri Sankara Subban, learned counsel for the assessee, relies on the decision of the Supreme Court in The State of Bombay Vs. Pandurang Vinayak Chaphalkar and Others, , wherein it is stated at page 246 :

" When a statute enacts that something shall be deemed to have been done, which in fact and truth was not done, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to and full effect must be given to the statutory fiction and it should be carried to its logical conclusion. "

There can be no doubt in regard to this proposition. But the question still remains as to what extent the statute has provided for the fiction. Counsel relies also on the decision of the Supreme Court in The Additional Income Tax Officer, Salem Vs. E. Alfred, wherein it was held that the legal representative of a deceased assessee, by virtue of the statutory fiction in Section 24B(1) of the Indian Income Tax Act, 1922, shall continue to be an assessee even after an assessment is made and the fiction continues to attract the penalty proceedings if the legal representative makes default in payment of the tax assessed. There is no such statutory fiction in the present case to make the notification retrospective and the decision referred to has no application to the present case.

Since the notification is not retrospective, we are clearly of the view that the assessee-trust is not entitled to the benefits of exemption u/s 5(1)(xviib) of the Wealth-tax Act. We, therefore, answer questions Nos. 1, 2 and 4 in favour of the Revenue and against the assessee and question No. 3 in favour of the assessee and against the Revenue.

A copy of this judgment under the seal of the court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.