Kerala Toddy Workers Welfare Fund Board V. The Commissioner of Income-Tax, Thiruvananthapuram and Income-Tax Officer (TDS), Ayakar Bhavan, Kowdiar, Thiruvananthapuram

OP/2131/2003

AI Insights

The case involves the Kerala Toddy Workers Welfare Fund Board, which sought to receive interest payments without tax deductions, arguing that they fall under a specific exemption in the Income Tax Act. The respondents, the Commissioner of Income-Tax and the Income-Tax Officer (TDS), contested this interpretation. The court examined whether the welfare fund boards qualify as statutory corporations under the relevant notification, which would exempt them from tax deductions at source. The court concluded that the boards do not meet the criteria of a statutory corporation as they are not wholly financed by the government nor are they companies where all shares are held by the government or the Reserve Bank of India.

• Counselvise Citation: [2008] 140 COUNSELVISE.COM (IT) 671607 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 13-06-2008
• Assessment Year: misc
• Laws Referred To: Income-Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: P K R MENON; GEORGE GEORGE
• Assessee Lawyers: C NAIR; S RAJ
• Keywords: Income tax exemption; Interest payment; Tax deduction at source; Welfare fund
• Section: 197; 194A(1); 194A(3)(f)

Judgement Text

" 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. 13/06/2008 SD/- (C.N.RAMACHANDRAN NAIR, JUDGE) APPENDIX PETITIONER'S EXHIBITS P1 : COPY OF RELEVANT PORTION OF THE NOTIFICATION IN A.N.AIYER'S INDIAN TAX LAWS, 2002. P2 : COPY OF THE LETTER DATED 06/01/2003 FORWARDED TO PETITIONER BY CATHOLIC SYRIAN BANK LTD., ULLOOR, THIRUVANANTHAPURAM. P3 : COPY OF NOTICE UNDER SECTION 156 OF THE INCOME-TAX ACT, 1961 ISSUED ALONG WITH THE PROCEEDINGS OF THE R2 ISSUED TO CATHOLIC SYRIAN BANK, 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// PA TO JUDGE. jg C.R. C.N.RAMACHANDRAN NAIR, J. ------------------------- O.P. Nos. 2131, 2920, 5105, 5167, 5571 of 2003 & WP(C) No.13410 of 2008 --------------------------------- Dated, this the 13th day of June, 2008 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 payment of welfare fund to building construction workers, toddy workers, abkari workers, tailoring workers etc., for a declaration that petitioners are entitled to receive interest payment from Banks, Treasuries etc. without deduction of income tax at source under Section 194A(1) of the Income Tax Act. 2. I have heard learned counsel appearing for petitioners and learned Standing Counsel appearing for respondents. 3. The claim of the petitioners is that petitioners are entitled to receive payment of interest without deduction of tax at source by virtue of their inclusion under Clause 22 of Notification No.SO 3489 dated 22-10-1970 issued by the Central Government under Section 194A(3)(f) of the Act. Learned standing counsel on the other hand contended that petitioners are not covered under Clause 22 of the Notification above referred and therefore payment O.P. Nos. 2131/03 & conn. cases -2- of interest has to be made to petitioners only after deduction of tax at source under Section 194A(1) of the Act. Clause 22 of the notification above referred is extracted hereunder for easy reference: “22. Any corporation established by a Central, State or Provincial Act; any company in which all the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that Bank; any undertaking or body including a society registered under the Societies Registration Act, 1860 (XXI of 1860), financed wholly by the Government : SO 3489/22-10-70” From the above, it is clear that only statutory corporations established by Central, State or Provincial legislation, are covered by the first part of the entry. The second part covered by the entry provides for companies, where shares are fully held by the Government or the Reserve Bank of India or a Corporation owned by the said Bank. The third category covered by the entry are undertakings or body including Society registered under the Societies Registration Act, which are financed wholly by the Government. It is clear from the above that exemption is available to the institutions which are funded either by Government or by Reserve Bank of India. None of the petitioners is a Government Corporation. Even though learned counsel for the petitioners O.P. Nos. 2131/03 & conn. cases -3- contended that 'corporation' referred to in the entry has a wide meaning, I do not think the Board of Trustees constituted under the welfare legislations in these cases can be treated as a statutory corporation referred to in Clause 22 of the Notification above referred. The statutes, under which the Boards of Trustees of the petitioners are created, are essentially welfare legislation for collection of funds from employees and employers for payment to employees at the time of death, retirement etc. The Board of Trustees are constituted only to administer the fund in terms of the statute. Learned counsel for petitioners referred to the provisions of the Act, whereunder Government retains control in the matter of administration of statute, which includes even nomination of trustees. However, I do not think the controls exercised by the Government such as nomination of Trustees or appointment of heads of the Boards make the welfare fund Board a statutory corporation within the meaning of Clause 22 above referred. Therefore, petitioners are not covered by the exemption notification relied on by them. 4. The next question to be considered is whether petitioners are entitled to receive payment of interest without deduction of tax at source. Learned standing counsel for O.P. Nos. 2131/03 & conn. cases -4- respondent rightly pointed out that if petitioners have no tax liability, it is for petitioners to approach the Assessing Officer or the Income Tax Officer (TDS) for obtaining certificate under Section 197 of the Income Tax Act for receiving payment of interest without deduction of tax at source. Even though, this is the right procedure for petitioners to claim benefit, I do not think any purpose will be served by petitioners approaching the Assessing Officer or the Income Tax Officer (TDS) for obtaining certificate under Section 197, unless they establish that they are entitled to exemption from income tax. What is important for the petitioners is to get exemption from income tax and not to get payment of interest without deduction of tax at source if they are otherwise made to pay tax. In order to achieve the purpose of petitioners, they have to get exemption specifically from income tax, because apparently the exemption Clauses contained in Section 10 of the Act do not include them. Learned counsel for the petitioners stated that petitioners have approached Central Government and Central Board of Direct Taxes for exemption and orders are awaited. I feel, the interest receivable on the funds of petitioners is only accretion to the fund and if it is taxed, the same will probably affect the interests 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 and employers. Therefore, I feel it is a fit case for the State Government to take up the matter to Central Government, so that a policy decision is taken with regard to the claim of exemption by various Boards, which have the same object. Petitioners will, therefore, approach the Secretary, Department of Labour, State Government, for him to take up the matter with the Central Finance Minister and the Central Labour Minister for getting exemption. If the matter is taken up to the Central Government, the concerned department will take a decision without any delay. Since under interim orders, the tax portion of the interest is retained by the Banks, Treasuries etc. I direct the respondents to continue the arrangement for another six months from now also, within which time, petitioners can obtain orders from the Central Government. These writ petitions are disposed of as above. (C.N.RAMACHANDRAN NAIR, JUDGE) jg "