Op/2131/2003 Of The Kerala Toddy Workes Welfare Fund v. The Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR FRIDAY, THE 13TH JUNE 2008 / 23RD JYAISHTA 1930 OP.No. 2131 of 2003(D) ---------------------- PETITIONER: ------------ KERALA TODDY WORKERS WELFARE FUND BOARD, THIRUVANANTHAPURAM, REPRESENTED BY ITS CHIEF WELFARE FUND INSPECTOR, C.WILSON. BY ADV. SRI.C.KOCHUNNY NAIR SRI.S.ARUN RAJ RESPONDENTS: ------------- 1. THE COMMISSIONER OF INCOME-TAX, THIRUVANANTHAPURAM. 2. INCOME-TAX OFFICER (TDS), AYAKAR BHAVAN, KOWDIAR, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT SRI.GEORGE K. GEORGE, SC FOR IT THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 13/06/2008, ALONG WITH OP NOS.2920, 5105, 5167, 5571 OF 2003 AND WP(C) NO.13410/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: OP NO.2131/2003 ORDER ON CMP NO.3931/2003 IN OP NO.2131/2003 DISMISSED. 13/06/2008SD/- (C.N.RAMACHANDRAN NAIR, JUDGE)APPENDIX PETITIONER'S EXHIBITS P1 :COPY OF RELEVANT PORTION OF THE NOTIFICATION IN A.N.AIYER'S INDIANTAX LAWS, 2002. P2 :COPY OF THE LETTER DATED 06/01/2003 FORWARDED TO PETITIONER BYCATHOLIC SYRIAN BANK LTD., ULLOOR, THIRUVANANTHAPURAM. P3 :COPY OF NOTICE UNDER SECTION 156 OF THE INCOME-TAX ACT, 1961ISSUED ALONG WITH THE PROCEEDINGS OF THE R2 ISSUED TO CATHOLIC SYRIANBANK, ULLOOR, THIRUVANANTHAPURAM. P4 :COPY OF LETTER DATED 08/01/2003 FORWARDED BY PETITIONER TO R1. P5 :COPY OF LETTER DATED 08/01/2003 FORWARDED BY PETITIONER TO R2. //TRUE COPY// jg PA TO JUDGE. C.N.RAMACHANDRAN NAIR, J. ------------------------- O.P. Nos. 2131, 2920, 5105, 5167, 5571 of 2003 & WP(C) No.13410 of 2008 --------------------------------- Dated, this the 13[th] day of June, 2008 C.R. J U D G M E N T These connected cases are filed by the Welfare Fund Boards,constituted under various State Legislations providing for paymentof welfare fund to building construction workers, toddy workers,abkari workers, tailoring workers etc., for a declaration thatpetitioners are entitled to receive interest payment from Banks,Treasuries etc. without deduction of income tax at source underSection 194A(1) of the Income Tax Act. 2.I have heard learned counsel appearing for petitionersand learned Standing Counsel appearing for respondents. 3.The claim of the petitioners is that petitioners areentitled to receive payment of interest without deduction of tax atsource by virtue of their inclusion under Clause 22 of NotificationNo.SO 3489 dated 22-10-1970 issued by the Central Governmentunder Section 194A(3)(f) of the Act. Learned standing counsel onthe other hand contended that petitioners are not covered underClause 22 of the Notification above referred and therefore payment O.P. Nos. 2131/03 & conn. cases of interest has to be made to petitioners only after deduction of taxat source under Section 194A(1) of the Act. Clause 22 of thenotification above referred is extracted hereunder for easyreference: “22.Any corporation established by a Central, State orProvincial Act; any company in which all the shares are held(whether singly or taken together) by the Government or theReserve Bank of India or a corporation owned by that Bank; anyundertaking or body including a society registered under theSocieties Registration Act, 1860 (XXI of 1860), financed whollyby the Government : SO 3489/22-10-70” O.P. Nos. 2131/03 & conn. cases of interest has to be made to petitioners only after deduction of taxat source under Section 194A(1) of the Act. Clause 22 of thenotification above referred is extracted hereunder for easyreference: “22.Any corporation established by a Central, State orProvincial Act; any company in which all the shares are held(whether singly or taken together) by the Government or theReserve Bank of India or a corporation owned by that Bank; anyundertaking or body including a society registered under theSocieties Registration Act, 1860 (XXI of 1860), financed whollyby the Government : SO 3489/22-10-70” From the above, it is clear that only statutory corporationsestablished by Central, State or Provincial legislation, are coveredby the first part of the entry. The second part covered by the entryprovides for companies, where shares are fully held by theGovernment or the Reserve Bank of India or a Corporation ownedby the said Bank. The third category covered by the entry areundertakings or body including Society registered under theSocieties Registration Act, which are financed wholly by theGovernment. It is clear from the above that exemption is availableto the institutions which are funded either by Government or byReserve Bank of India. None of the petitioners is a GovernmentCorporation. Even though learned counsel for the petitioners O.P. Nos. 2131/03 & conn. cases contended that 'corporation' referred to in the entry has a widemeaning, I do not think the Board of Trustees constituted under thewelfare legislations in these cases can be treated as a statutorycorporation referred to in Clause 22 of the Notification abovereferred. The statutes, under which the Boards of Trustees of thepetitioners are created, are essentially welfare legislation forcollection of funds from employees and employers for payment toemployees at the time of death, retirement etc. The Board ofTrustees are constituted only to administer the fund in terms of thestatute. Learned counsel for petitioners referred to the provisionsof the Act, whereunder Government retains control in the matter ofadministration of statute, which includes even nomination oftrustees. However, I do not think the controls exercised by theGovernment such as nomination of Trustees or appointment ofheads of the Boards make the welfare fund Board a statutorycorporation within the meaning of Clause 22 above referred.Therefore, petitioners are not covered by the exemption notificationrelied on by them. 4.The next question to be considered is whetherpetitioners are entitled to receive payment of interest withoutdeduction of tax at source. Learned standing counsel for O.P. Nos. 2131/03 & conn. cases 4.The next question to be considered is whetherpetitioners are entitled to receive payment of interest withoutdeduction of tax at source. Learned standing counsel for O.P. Nos. 2131/03 & conn. cases respondent rightly pointed out that if petitioners have no taxliability, it is for petitioners to approach the Assessing Officer or theIncome Tax Officer (TDS) for obtaining certificate under Section 197of the Income Tax Act for receiving payment of interest withoutdeduction of tax at source. Even though, this is the right procedurefor petitioners to claim benefit, I do not think any purpose will beserved by petitioners approaching the Assessing Officer or theIncome Tax Officer (TDS) for obtaining certificate under Section197, unless they establish that they are entitled to exemption fromincome tax. What is important for the petitioners is to getexemption from income tax and not to get payment of interestwithout deduction of tax at source if they are otherwise made topay tax. In order to achieve the purpose of petitioners, they haveto get exemption specifically from income tax, because apparentlythe exemption Clauses contained in Section 10 of the Act do notinclude them. Learned counsel for the petitioners stated thatpetitioners have approached Central Government and Central Boardof Direct Taxes for exemption and orders are awaited. I feel, theinterest receivable on the funds of petitioners is only accretion tothe fund and if it is taxed, the same will probably affect theinterests of the beneficiaries, who are the employees. Besides this, O.P. Nos. 2131/03 & conn. cases -5- the fund is constituted of contribution from employees andemployers. Therefore, I feel it is a fit case for the StateGovernment to take up the matter to Central Government, so that apolicy decision is taken with regard to the claim of exemption byvarious Boards, which have the same object. Petitioners will,therefore, approach the Secretary, Department of Labour, StateGovernment, for him to take up the matter with the Central FinanceMinister and the Central Labour Minister for getting exemption. Ifthe matter is taken up to the Central Government, the concerneddepartment will take a decision without any delay. Since underinterim orders, the tax portion of the interest is retained by theBanks, Treasuries etc. I direct the respondents to continue thearrangement for another six months from now also, within whichtime, petitioners can obtain orders from the Central Government. These writ petitions are disposed of as above. (C.N.RAMACHANDRAN NAIR, JUDGE)