COMMISSIONER OF WEALTH TAX Vs. RANGANAYAKI GOPALAN

JUDGEMENT

(1.) ON the 18th March, 1960, an agreement was executed between the Hindu Office and the National Press Employees Union and M/s. Kasturi and Sons Ltd. (hereinafter called "the company"), the proprietors of Hindu and Sports and Pastime, for payment of gratuity. Under the scheme of this agreement, every employee who had been in service or continues in service after 1st January, 1957, would be entitled to the payment of gratuity on retirement, death or termination otherwise than as punishment on the basis and conditions referred to therein. In order to give effect to this agreement, an actuary was appointed to report on the financial arrangements needed for starting and maintaining the gratuity scheme. The two principal questions on which the actuary's advice was sought were regarding the amounts that have to be set apart for each year after the inception of the gratuity fund as and from 1st July, 1960, and regarding the liability that has already arisen in respect of the existing employees for services rendered prior to 1960.

(2.) IN his report, on the first question, the actuary reported that the "contribution to the fund shall be made every year at 4 per cent. of the wage bills but it is open to revision upward or downward in accordance with the results which the actuarial valuation conducted at any subsequent date may require. Regarding the second question, he said that the total amount of liability on this account was Rs. 19,46,192 and adding Rs. 3,808 towards certain incidental expenses he determined the liability at Rs. 19,50,000. The proposed trust deed, however, contained a clause that the company may at its option pay to the fund either the entire sum so estimated in one lump sum or in such instalments and at such times as the board of directors of the company may determine. The report further stated that if the board decided to exercise this option the balance outstanding should be treated as loan and interest payment at 31/2 per cent. per annum with yearly rests be contributed by the company. The company in its meeting held on December 16, 1960, considered this question on constitution of the funds and the terms of the trust deed and approved the same by a resolution of the same date. A deed of trust was accordingly executed providing for vesting of the fund in the trustees and for administration of the trust fund. On December 18, 1960, the board of directors of the company passed the following resolution:

(3.) ONE of the two questions referred to the actuary for advice was as to the amount of liability that has already arisen in respect of the existing employees for services rendered prior to 1960. The actuary determined this amount at Rs. 19,50,000. The trust deed provided that the company shall pay to the trustees every year commencing from July 1, 1960, such sum or sums as may from time to time be determined in accordance with the provisions of the rules and regulations of the trust fund. The entire fund shall vest in the trustees who shall administer the same in accordance with and for the purposes set out in the trust deed. The trustees are obliged to invest all monies which are not immediately required for any of the purposes of the scheme in accordance with Section 20 of the Indian Trusts Act. The interest or other income accrued or earned from the said funds or any investments thereof shall form part of the fund. In respect of the liability that had already arisen in respect of the existing employees for services rendered prior to 1960, Clause 14 of the rules and regulations of the trust fund states that the company had covenanted with the trustees that it will make such payments to the fund in accordance therewith. Sub-clause (c) of Clause 14 reads as follows :