Director of Wealth Tax (Exemption) vs Tube Investments of India Ltd., Management, Employees Welfare Trust

R. Jayasimha Babu, J.—The Tribunal, in our view, was right in holding that the retrospective amendment of Section 40A(11) of the Income

Tax Act, 1961, which was done by the Finance Act, 1984, combined with the communication, dated June 25, 1984, sent by the employer to the

trust, in which it had recalled the unutilised amount out of the contributions that had been made by it in the earlier years had the effect of reducing

the wealth of the trust to the extent of the amounts so recalled, even though as on the valuation dates, the amount had not been recalled and could

not have been recalled, having regard to the position of law that had prevailed prior to the amendment.

The employer was enabled to recall the amount of the unutilised contribution, only by reason of the amendment. That amendment was not

prospective only, but was retrospective. The law as on the valuation date also, therefore, must be regarded as the law as it was amended in the

year 1984 for the relevant valuation dates June 30, 1981 and June 30, 1982, the assessment years being 1982-83 and 1983-84.

The fact that the employer had, by its letter of June 25, 1984, sought the return of the unutilised amount out of the contribution that had been

made by it to the trust is undisputed. The further fact that the amount was also returned by the trust is also not in dispute. The retrospective effect

given to the law was to enable the employer to recall the unutilised fund. It is the amount that was lying unutilised at the time of the demand that is

required to be returned. As on the relevant valuation dates those amounts were capable of being recalled by the employer and the employer having

in fact sought such recall shortly after the amendment was effected, retrospective effect must be given to that exercise of the power by the

employer and it must be held to relate to the amounts contributed and which had remained unutilised. The amount which was in the hands of the

trust as on the valuation dates, therefore, were not capable of being regarded as amounts belonging to the trust absolutely without the burden of the

obligation to return the same on the demand of the employer.

The Assessing Officer and the appellate authority had failed to take proper note of the effect of the amendment. The Revenue cannot, while on

the one hand demanding tax by looking to the valuation date, ignore on the other, the effect of the amendment made subsequent to the valuation

date but which amendment was given retrospective effect, that is, from a date prior to the relevant valuation date. The retrospective operation of

the law cannot be ignored. That act of the Legislature binds the assessing authority and it was not open to the Assessing Officers to close their eyes

to the amendment to treat the amounts in the hands of the employees welfare trust as belonging to it absolutely as on the valuation date.

The Tribunal has rightly set aside the order of the authorities below.

We, therefore, answer the question referred to us in favour of the assessce and against the Revenue.