ORDER
N. D. RAGHAVAN, J. M. :
This is an appeal of the assessee challenging the order dt. 14th March, 1988 of the CIT(A) as erroneous which is liable to be quashed.
2. The short facts of the case according to the assessee for the purpose of our determination of the relevant issue are briefly these. The assessee is a company in which the public are substantially interested. Its business is to produce, manufacture, refine, repair, import, export, purchase, sell and generally deal in all kinds of portland cement. On 31st Aug., 1984 it filed its original return for the assessment year in question disclosing its total income at Rs. 42,42,890. A revised return disclosing Nil income after setting off the losses of the previous years was filed on 30th Aug., 1985. Another revised return declaring nil income was filed on 27th June, 1986. The assessment was completed on 31st March, 1987 computing total income at Rs. 5,18,39,236 after effecting various additions. On appeal, the appellate officer allowed some grounds and upheld some disallowances. The relevant issues before us are these : The assessee contributed Rs. 1,50,00,000 to M/s. Raasi Cements Employees Welfare Trust and Raasi Cement Executives Welfare Trust and debited to staff welfare expenses account. The Assessing Officer treated the amount as capital contribution and did not allow it as revenue expenditure. On appeal it was confirmed. That apart, the Assessing Officer made enquiry without putting it to the assessee for explanations and added various amounts in addition to the amount of Rs. 60,00,000 as additional income to the returned income. On appeal, these additions were confirmed. The assessee is praying also for consequential depreciation and investment allowance and depreciation at 10% on factory building and 5% on non-factory buildings against which only 5% and 2.5% were allowed. Thus the instant second appeal by the assessee before us.
3.1 The learned senior counsel Shri K. R. Ramamani for the representative on behalf of the assessee focussed his submissions on the issues involved that : As regards the second ground of contribution to the Fund, paragraph 7 of the assessment order at page 7 thereof may be seen, as well as para 14 of the appellate order on the relevant issues. Pages 3 to 24 of the paper book filed now is the trust deed executed on 11th June, 1983 between the assessee-company and the trustees constituting Raasi Cements Employees Welfare Fund Scheme. Pages 25-47 of the paper book is another trust deed executed also on 11th June, 1983 between the assessee-company and the trustees constituting Raasi Cements Officers and Executives Welfare Scheme. Pages 48-50 of the paper book is the agreement entered into on 12th April, 1983 between the assessee-company and the Raasi Cements Ltd. Staff & Workers Union. The appellate officer has not unfortunately followed the decision in the case of India Pistons Repco Ltd. vs. IAC (1988) 30 TTJ (Mad) 502 : (1988) 26 ITD 413 (Mad) which should have been followed by him instead of attempting to make irrelevant distinction. The case of Sree Saraswathi Mills Ltd. in ITA No. 1367/Mad/85 ordered by Tribunal on 4th Nov., 1987 relied upon by the Revenue in the case of India Pistons is prior to the latters decision of the Tribunal pronounced on 14th Jan., 1988. However, Saraswathi Mills case (supra) has also been duly considered and distinguished by India Pistons case. The highlight of the issue could be well understood in the entire para 20 of the India Pistons case (supra) at page 430. The short question is that as to whether breach of the agreement entered into by the assessee-company with its staff and workers union pursuant and subsequent to which the benefit of Employees Welfare Fund Scheme is instituted would be a dispute under the Industrial Disputes Act and the answer to this would decide the allowability or otherwise of the claim. The decision in the India Pistons case (supra) is revealing the solution and there is no decision other than it in favour of assessee. The object and intention of the Legislature in introducing S. 40A(9) was only to discourage contribution to any trust which do not benefit the employees in any manner. In the instant case, a reading of the trust deed would clearly reveal that the beneficiaries of the trust are the assessees employees. Hence, having regard to the Legislatures intention in introducing the said section and the fact that the contribution constituted employees welfare measures as well as that such contribution made pursuant to an agreement with the employees is the requirement under the Industrial Disputes Act violation of which would result in penalty to the defaulter, the assessee is entitled for the allowance of the relief asked for. The appellate officer erred in upholding the conclusion made by the Assessing Officer in treating the amount of Rs. 1,50,00,000 as capital contributions to M/s. Raasi Cement Employees Welfare Trust and M/s. Raasi Cement Executives Welfare Trust and disallowed under S. 40A(9). Thus the orders impugned became the target of heavy attack on behalf of the assessee resulting in the effective demonstration of the first ground of appeal that the order of the appellate officer is against law and facts of the case.
3.2 As regards the third ground, the appellate officer erred in upholding the addition of Rs. 60,00,000 made by the Assessing Officer as additional income added to the returned income when clear additions are made on various counts in respect of enquiry by the Assessing Officer. However, this ground is not pressed for.
3.3 Regarding the fourth ground, the assessee is eligible for consequential depreciation and investment allowance. On this no finding has been given by the authorities below. Being it consequential, this may, therefore, be restored to the appellate officer.
3.4 With reference to the fifth ground, the assessee is also eligible for consequential reliefs under Ss. 80HH and 80-I. On this also no reference or observation has been given by the authorities below. Being this also consequential, this may also be restored to the appellate officer.
3.5 About the sixth ground, the assessee is also entitled to depreciation on factory building and non-factory buildings at 10% and 5% respectively against which only 5% and 2.5% has been allowed. On this while on finding has been given by the Assessing Officer, the appellate officer has given it in para 34 at page 55 of the order. This may also be restored to the appellate officer.
4. On the other hand, while the learned Representative for the Revenue was fair enough to raise no objection, without, however, giving up its stand, in regard to the submissions made on behalf of the assessee on ground numbers 3 to 6, vehement counter submissions were made as regards second ground of contribution to the fund by contesting that : It cannot be said that the fund comes under the provisions of Industrial Disputes Act. Only when there is breach of statutory obligations unlike the contractual obligations under the agreement herein, the play of the Industrial Disputes Act would come into operation. The relevant trust deeds did not refer to the Industrial Disputes Act at all. Hence, the scheme adopted by the assessee is a device of an after thought. The decision in the case of India Pistons (supra) relied upon by the assessee is distinguishable as that was a case wherein the fund was set up directly under the Industrial Disputes Act (ID Act). Both the conditions under the relevant provision of the ID Act do not co-exist in the instant case. Sec. 40A(9) of the IT Act is a categorical provision of the statute to curb the mischief under the garb of the like funds and trust created as herein. The decision in the case of Mysore Kirloskar Ltd. & Anr. vs. Union of India & Ors. (1986) 160 ITR 50 (Kar), holding that S. 40A(9) and (10) of the IT Act, recognising only certain payments in the circumstances detailed therein and S. 36(1)(iv) and (v) of the Act operate uniformly against all employers is relied upon. Thus the order impugned was well defended by the Revenue.
5.1 We have heard the respective submission of both the parties besides going through the facts of the case on record and the orders of the authorities below including the paper book filed on behalf of the assessee as well as the case laws relied upon by the rival contenders. After doing so, we are of the opinion that it cannot be said that the assessees submissions are sans substance. Among the case laws relied upon by the parties, the case of India Pistons (supra) has more relevance to the issue in question before us. The question therein was as to whether the settlement arrived at could be regarded as a fund required to be set up by or under any other law for the time being in force. It was not the case of the assessee therein that it was required by any law but that it was required to be set up under the ID Act. The Revenue except for contending therein that the ID Act itself does not require the setting up of the fund was unable to controvert the situation that the Act provides for settlement of industrial disputes which is to be strictly enforced and if a settlement is entered into providing for the setting up of the fund then it was the one required to be set up under the ID Act. Therefore, it was a genuine fund set up with a proper scheme for the benefit of the employees, the funds being deposited with banks and the assessee having no control over it. The decision in the case of Sree Saraswathi Mills. Ltd. relied upon by the Revenue therein was also duly considered and distinguished by observing that in the case of Saraswathi Mill there was no settlement but only voluntary creation of a fund by the employers and there was no mention of any scheme to administer it. Under the circumstances the Tribunal was satisfied that the exception provided to S. 40A(9) applied to the case of India Pistons (supra) and that the contribution made to the fund could not be disallowed. It appears that the assessees further stand therein was that even if the contribution was to be disallowed the actual payment should be allowed under S. 40A(10) but which situation was held to have not arisen in the view that was taken. In our opinion, the ratio of that decision squarely applies to the instant case.
5.2 We also further note therein that it was held in the case of Thompson vs. North Eastern Marine Engg. Co. (1903) 1 KB 428 that the compensation settled by agreement between employer and workmen was compensation paid under the Workmens Compensation Act, apart from finding a purposive approach requiring to taken note of the memorandum set out that it was only concerned without funds set up with a proper scheme unlike the present case where it was a genuine fund set up with a proper scheme for the benefit of employees the funds being set out to the trust in the manner provided in the trust deed executed and the assessee having no control over it.
5.3 In the case before us, also, as found at page 48 of the paper book of the assessee, an agreement has been entered into on 12th April, 1983 between the assessee-company represented by its Works Manager and the Raasi Cements Ltd. Staff & Workers Union represented by its President. A perusal of the agreement shows that the employees union has been pressing their demands for the assessee-company to set up certain funds for the purpose of carrying out welfare measures for the benefit of their workers and in particular to assist them in times of distress. The proposal was made by the union to the management of the company which in view also of the contributory factor of labour – management co-operation desired to take such welfare measures informed the union that the company was contemplating the setting up of the the trust for the benefit of its employees and on the basis of settlement arrived at with the companys employees setting up of a welfare trust was assumed catering to the benefits of all the employees and the workers the latter having also agreed for the settlement.
5.4 It was also further agreed that the company would set apart a sum of rupees one crore in the initial year for providing medical relief, having facilities, granting loans to employees, construction of hospital, schools, provision of recreational facilities and other welfare activities. The employees in turn assured the management of the company that in view of the settlement arrived at, they shall not raise any industrial dispute, or go on strike or press for their demands by any other agitational manner but shall undertake, assure and cooperate, in view of the settlement of the dispute with the management to contribute their mite for the well being of the company as well as for achieving quality goods and production targets. Pursuant thereto, a trust deed dt. 11th June, 1983 was also entered into between the assessee-company and its three trustees to implement the scheme as agreed to in the agreement. We are, therefore, of the view that after proper analysis of the materials placed before us and of the rival submissions highlighted by the parties as well as in the light of these laws reported in (1988) 30 TTJ (Mad) 502 : (1988) 26 ITD 413 (Mad) that here is also a case where a genuine fund has been set up with a proper scheme for the benefit of the employees of the assessee-company, the funds being provided exclusively for it over which the assessee has no control in view of the provisions of the trust deed that has been executed consequently and for proper implementation of the scheme of welfare measures.
5.5 Apart from the above, the provisions of S. 40A(9) cannot be made applicable to a genuine trust which is constituted under a trust deed executed and which is formed for the purpose of ameliorating the conditions of workmen working in an industry as herein. The Industrial Disputes Act also obliges the employer to comply with the terms of settlement arrived at and to discharge the obligation under the agreement. In the instant case, neither is there any slight controversy not even any doubt about the genuineness of the purposes for which the trust is constituted. The only reason for the disallowance is the plea that S. 40A(9) requires disallowance of such contribution. But admittedly it has not been the claim of the Department that the trust constituted is not for the benefit of the workmen nor is it that the trust constituted is not bona fide. In the circumstances, the applicability of S. 40A(9) in the manner canvassed by the Revenue cannot in our opinion be found to be sustained.
5.6 Further if a perusal is had over the Notes on Clauses in 146 ITR 139 (St) and the memorandum explaining the provisions and also the Finance Ministers speech made on the floor of the house of Parliament while moving the bill reported in 146 ITR 69 (St), it would be seen that S. 40A(9) is introduced into the statute with retrospective effect for the purpose of hitting at those trusts which were formed without any real purpose for the benefit of the labour but is used as a device or instrument by the management for the control of shares and not those trust of genuine nature as they are in the instant case.
5.7 In our analysis of the issue is stretched further, we are positioned in the place of viewing that it may be incorrect to opine that if a contractual agreement is entered into with labour union of setting up of certain welfare scheme even if they do not fall within the realm of ID Act there is no obligation under any law on the part of the management to fulfil that commitment and also further viewing that even if for any reason the contribution to the trust is hit by S. 40A(9) such contributions are saved by S. 40A(10). The last limb of S. 40A(9) reads as : “or under any other law for the time being in force”. Once there is a valid agreement entered into by the parties enforceable in law against each other it becomes legal obligation though arising out of a contract. Such an obligation falls within the last limb extracted above an exception to S. 40A(9). Now coming to the alternative aspect, sub-s. (10) appears to be a proviso to sub-s. (9) of S. 40A. While sub-s. (9) provides for disallowance of amounts contributed to the trusts set up by an employer, sub-s. (10) excludes the operation of sub-s. (9) under certain circumstances. Notwithstanding whatever is stated in sub-s. (9), sub-s. (10) states that any expenditure bona fide laid out or expended before 1st March, 1984 shall be deducted in computing the total income. The essential ingredient is that the expenditure must be bona fide laid out or expended. In the instant case before us the trust formed constituted a layout to promote the facilities to the workmen in accordance with the settlement arrived at by the agreement entered into on 12th April, 1983. There is no dispute that the trust constituted is bona fide and that the fund was set up to the trust within the time specified. Hence, the amounts contributed have to be allowed under S. 40A(10) alternatively also.
5.8 Any other interpretation of sub-s. (9) or (10) will not serve the purpose for which they are introduced in the statute. Indeed it is a settled proposition of law that while interpreting the provisions of statute, full effect must be given to the objects and reasons for which they are placed in the Act and that it cannot be interpreted in a manner to frustrate the object or defeat the purpose of the provisions in the enactment. Construction leading to manifest absurdity, futility, palpable injustice or absurd inconvenience or anamoly should be avoided. This is fortified by the decision in the case of American Home Products Corpn. vs. Mac Laboratories P. Ltd. AIR 1986 SC 137 at para 66. Further decision in the case of Saroj Aggaral vs. CIT (1985) 156 ITR 497 (SC) held that Courts should whenever possible, unless prevented by the express language of any section or compelling circumstances of any particular case, make a benevolent and justice oriented inference and that facts must be viewed in social milieu of a country. It would be interesting to refer to similar observations in the case of State of T. N. vs. Kodaikanal Motor Union P. Ltd. 62 STC 272 (SC) at 280 which is extracted below :
“The Courts must always seek to find out the intention of the legislature. Though the Courts must find out the intention of the Statute from the language used, but language more often than not is an imperfect instrument of expression of human though. As Lord Denning said, it would be idle to expect every statutory provision to be crafted with divine precision and perfect clarity. As judge learned Hand said, we must not make a fortress out of dictionary but remember that statute must have (sic) unjust or absurd result. We should not make a mockery of legislation. To make sense out of an unhappily worded provision, where the purpose is apparent to the judicial eye some violence to the language is permissible.”
If the above principle of interpretation are involved in the instant case, it would be seen that where the creation of trust becomes mandatory because of the provisions of statute and the company has in fact parted with the funds it would be meaningful if sub-s. (9) is interpreted so as not to hit at such trusts herein which appear to be bona fide. Such interpretation will only be in consonance with the object of the section and would be more equitable and justice oriented inference and it would not result in palpable injustice to the taxpayer. In coming to such conclusion in the instant case, it is not even necessary to cause any violence to the language as laid down by the decision of the Supreme Court, supra, since in our opinion, the section itself is very clean and permits such an interpretation in the issue before us herein. The intention behind the said sub-sections are to hit only at the artificial, dubious and make believe trusts having purposes altogether different, unlike in the instant cases where the trust formed has bona fide interests and purposes as revealed from a perusal of the relevant documents and admittedly too. Hence, viewed from any angle there can be no doubt that the amounts contributed towards the trust qualify for allowance as deduction under the relevant provisions of the IT Act while computing the total income.
5.9 Therefore, on the facts and circumstances of the case and from the rival submissions as highlighted by the parties on the above issue in question as well in the light of the case laws and for the reasons discussed above, we uphold the stand of the assessee regarding its contributions to M/s. Raasi Cement Employees Welfare Trust. As regards its contributions to M/s. Raasi Cement Executives Welfare Trust, we do not sustain the stand of the assessee as neither it pertains to staff and workers union as in the case of employees welfare trust so as to fall back on or be backed by the provisions of the ID Act but only with the executive welfare nor is it constituted pursuant to any agreement that has been entered into by the assessee-company with its executives. In this connection question (sic) that arose in the case of Sree Saraswathi Mills Ltd. (supra) as relied upon by the Revenue in the case of India Pistons (supra), because in the Saraswathi Mills case (supra) as in the case of Executive Welfare Trust herein there was no settlement but only the voluntary creation of the fund by the employers. In the circumstances we are satisfied to reject the stand of the assessee in the case of Executive Welfare Trust in favour of the Revenue unlike in the case of Employees Welfare Trust where we have supported the stand of the assessee in its favour. Thus the second ground of appeal is accepted by us in part only.
5.10 As agreed to by the parties from their submissions respectively referred earlier above :
(a) the third ground of appeal on the addition of Rs. 80,000 is dismissed as not pressed for;
(b) the fourth ground of appeal on the consequential depreciation and investment allowance on which admittedly no finding has been given by both the authorities below, the fifth ground of appeal on the consequential reliefs under S. 80HH and 80-I on which also admittedly no reference or observation has been made by both the authorities below, and the sixth ground of appeal for depreciation on factory building and non-factory building on which the order impugned has already restored it to the Assessing Officer are remitted to the file of the Assessing Officer himself to decide the issues de novo in accordance with facts and law and after giving opportunity of being heard to the assessee and duly considering any relevant material that may be relied upon at the time of hearing.
5.11 Thus the orders impugned are set aside on the relevant grounds of appeal respectively as above, resulting in modification of the order impugned accordingly.
6. In the result, the appeal of the assessee is allowed partly.