1. This appeal is directed against the order made Under Section 263 of the Income-tax Act, 1961.
2. The assessee is an individual employed with M/s. Godrej & Boyce Mfg.
Co. (P.) Ltd. This company had a superannuation scheme which had been approved by the Commissioner of Income-tax. However, the company with the approval of the Commissioner dated 12-12-1983 wound up the scheme.
Consequently, in the previous year ended 31-3-1984, corresponding to the assessment year 1984-85, the assessee was entitled to receive a sum of Rs. 1,04,079 from the trustees of that superannuation fund. Since the approval had been given for winding up the trust and paying out the money subject to the deduction of tax at source, the trustees had deducted tax of Rs. 38,135 at source and paid to the assessee only the balance of Rs. 65,944. The assessee claimed that the amount receivable was not liable to tax and the ITO in making the assessment on 26-3-1986 accepted that claim and refunded the tax deducted at source. On a review of that order, the Commissioner of Income-tax came to the conclusion that it was erroneous and prejudicial to the revenue as he was of the view that the amount paid by the trust to the assessee was liable to tax. He rejected the contention of the assessee that similar amount had been held to be not taxable by the order of the Appellate Tribunal in the case of G.B. Menon [IT Appeal No. 3363 (Bom.) of 1979].
3. The assessee is, therefore, in appeal to contend that inasmuch as the order of assessment was in conformity with the order of the Tribunal in a similar case which had become final, it could not be considered to be erroneous in law. On the other hand, it was contended on behalf of the revenue that the order of the Tribunal relied on by the assessee was required to be reconsidered for the reasons stated by the Commissioner in his order and, therefore, the assessment accepting the claim that the amount was not taxable was erroneous.
4. On a consideration of the rival submissions, it is seen that the order of the Tribunal in the case of G.B. Menon (supra) directly covers the issue. The Appellate Tribunal had pointed out in that case that Section 17(3)(ii) provides that any refund of contribution made by the trustees to the employee-members of an approved superannuation fund is excluded from the definition of "profits in lieu of salary". The contention of the revenue is that that exclusion should be confined to a continuing fund and cannot refer to payments made after the fund is wound up. But this argument does not stand to reason because the object of the superannuation fund is to provide a terminal benefit which is free of tax and it cannot be said that it will become taxable merely because the payment is accelerated with the approval of the Commissioner of Income-tax.
The very exemption under Section 17(3) has been made only on the understanding that these amounts are not of income nature but are only capital receipts. Therefore, it makes no difference whether the payment was made out of a continuing fund or upon winding up of the fund. Hence it is significant that the order of the Tribunal has been allowed to become final by the Department after the Tribunal rejected the application for reference and the High Court also confirmed such rejection.
5. The assessee himself had pointed out to the Commissioner in his reply to the show-cause notice that he was not the only employee who received the amount from the superannuation fund of M/s. Godrej & Boyce Mfg. Co. (P.) Ltd. and none of the other employees has been taxed on this amount. He had also referred to the case of G.B. Menon (supra), who had been repaid the contribution from another fund relating to M/s.
Rayon Yarns Import Co. (P.) Ltd. in identical circumstances where the order of the Tribunal had become final. When Section 263 enables the Commissioner of Income-tax to revise the orders of the Income-tax Officer, it confers a discretionary power which has to be exercised reasonably. It is implicit in the concept of judicial discretion that it includes a duty to be impartial and not to discriminate on unacceptable grounds (See de Smith's Judicial Review of Administrative Action, 4th Edition, p. 346). In the present case, the order of the Commissioner is clearly discriminatory since it seeks to tax this assessee alone on a class of receipt which has been accepted as not taxable in the hands of other assessees. Besides, in the absence of any decision of the Supreme Court or any High Court taking a contrary view, an order of assessment which is in conformity with the order of the Tribunal holding that such a class of receipt is not taxable cannot be regarded as erroneous in law. Hence for both these reasons the order of the Commissioner is untenable and is cancelled.