1994 PLP (Trib (PTD)

4. We have asked Mr. Sirajul Haq Memon if there was any provision in the Income Tax Act, 1922 parallel to the section 24(g) of the Income Tax Ordinance, 1979 to which Mr. Sirajul Haq Memon has replied in negative. In the Income Tax Act, 1922 there was a provision which is analogous to the provision contained in section 24(h) and the bar contained in section 24(g) has been introduced by the Income Tax Ordinance, 1979 for the first time.

5. Mr. Sirajul Haq Memon when confronted with the above situation contended that the provision contained in section 24(g) is not applicable to the facts and circumstances of the present case because according to Mr. Sirajul Haq Memon the provisions were applicable when provident fund, superannuation fund or gratuity fund was created, and it was not recognised. However if no provident fund, superannuation fund or gratuity fund has been created the bar contained in section 24(g) shall not be applicable. Mr. Sirajul Haq Memon was asked if such interpretation would not render section 24(g) of the Income Tax Ordinance, 1979 as redundant and superfluous to which he has replied in negative. He has contended that the provisions contained in section 24(g) shall remain operative and shall be applicable when an assessee has created a fund, but it is not recongised. However if no fund has been created, the provisions contained in section 24(g) shall not be applicable. The point canvassed by Mr. Memon has been considered by us in several other judgments and we have reached to the conclusion that the contention is not tenable. We would like to deal with the issue in some detail in order to show that the contention is without substance and the purpose of law is very simple which does not require any interpretation by the Hon'ble High Court. We asked Mr. Sirajul Haq Memon if the provisions for gratuity created by the applicant does not amount to creation of gratuity fund to which Mr. Sirajul Haq Memon replied in negative. We asked Mr. Sirajul, Haq Memon to define the expression "fund" and Mr. Sirajul Haq Memon stated that in the ordinary common parlance the expression "fund" means accumulation of money for some specific purpose but according to Mr. Sirajul Haq Memon the ordinary meaning of the expression "fund" should not be taken into consideration because the expression "fund" used in section 24(g) is a term of art and is not an ordinary expression. When asked to substantiate his contention that the expression "fund" as used in section 24(g) is a term of art Mr. Sirajul Haq Memon has submitted that it has been defined in Sixth Schedule which has been framed in accordance with the provisions contained in sections 2, 24 and 40 of the Income Tax Ordinance, 1979. The rules relating to approved gratuity fund are contained in Part Three of the Sixth Schedule to the Income Tax Ordinance, 1979. A perusal of these rules shows that the term gratuity fund has not been defined in these rules. The term approved gratuity fund has however been defined in section 2(4) of the Income Tax Ordinance, 1979 to mean a gratuity fund which has been, and continues to be approved by the Commissioner in accordance with the Rules contained in Part Three of the Sixth Schedule. Thus it will be seen that the expression approved gratuity fund has been defined in Income Tax Ordinance, 1979, but the expression gratuity fund has not been defined in the Income Tax Ordinance, 1979 or the Rules framed thereunder. The result is that the expression `gratuity fund' shall not be treated as a term of art and it is to be given its ordinary meaning as understood in common parlance. A similar point has been considered by the Calcutta High Court in the case of Ducan Brothers & Co. Ltd. v. CIT (1978) 111 ITR 885 and has been followed by the same High Court again in the case of Duncan Brother & Co. Ltd. v. CIT 1981 128 ITR

302. It has been held in the above judgments by the Calcutta High Court that etymologically fund means a sum of money available for the payment or discharge of liabilities and if the term fund is not defined in a particular statute, it is to be given to its ordinary meaning as understood in the common parlance. It has been held by the Calcutta High Court that considering the meaning of expression "fund" in common parlance the provision for taxation constitutes fund. The Calcutta High Court accepted the contentions that an amount already earmarked for a particular liability such as a provision for tax amounts to fund.

6. Examining the meaning of expression "fund" as defined in various dictionaries we find that in Jowitt's Dictionary of English Law, 2nd Edition, Volume 1, page 840 the term "fund" has been defined as follows: `Fund' a sum of money available for the payment or discharge of liabilities. Thus the assets of a testator form a fund for the payment of his debts."

7. In the dictionary of Accountants, Fourth Edition by Eric L. Kohler, pages 204 to 208 the fund has been defined as follows: "Fund. (1) An asset or group of assets within any organization, separated physically or in the accounts or both from other assets and limited to specific uses. Examples: a petty cash or working fund; a replacement and renewal fund; and accident fund; a contingent fund; a pension fund. (2) Cash, securities, or other assets placed in the hands of a trustee, principal or income or both being expended in accordance with the terms of a formal agreement. Examples: a trust fund created by a will; and endowment fund; a skinning fund. (3) (Government accounting) A self-balancing group of accounts

assets, liability, revenue and expense

relating to specified sources and uses of capital and revenue. (4) Pl. Current assets less current liabilities (on an accrual basis); working capital; a term used in flow statements. (5) Pl.

Cash. V.t.

1. To convert currently maturing liabilities into a long term loan.

2. To provide for the ultimate payment of a liability by the systematic accumulation of cash or other assets in a separate account or trust. A special revenue fund is created for taxes and other revenues levied or set aside for specified purposes. For example, if a separate fund is authorised for schools, a special revenue fund is set up to account for its disposition. The accounting principles, procedures, and final statements of a special revenue fund resemble those of the general fund Other Funds. A balance-sheet combining a group of related funds should indicate the amount of assets, liabilities, reserves and surplus applicable to j each fund within the group. The revenues and expenditures of each fund must likewise be kept independent, and the revenues of one fund should not be used to meet the expenditures of another without legal authority or opinion behind the action."

8. In Cassell's English Dictionary the term fund has been defined as under:

"Fund (fund) (F.Fond, L. Fundus, the bottom; later assim. to L.), n. A sum of money or stock of anything available for use or enjoyment; assets, capital; a sum of money set apart for a specific object permanent or temporary; (pl.)"

9. In Shorter Oxford English Dictionary, Third Edition, page 761 the expression "fund" has been defined as follows: "FUNDS.

1761. 2.--FOND sb. L--1748.

3. Source of supply; a permanent stock that can be drawn upon 1695. 4. a. Sing. A stock or sum of money, esp. one set apart for a particular purpose 1694. b. pl. Pecuniary resources 1728. 5. a. A portion of revenue set apart as a security for specified payments--1776. b. The (public) funds; the stock of the national debt considered as a mode of investment 1713."

10. In the Dictionary of Accounting Terms by Derek French, First Edition, at page 130 the term "fund" has been defined as follows: "Fund. (1) Noun. A stock or sum of money, especially one set aside for a particular purpose. (2) Verb. To provide money for a particular purpose. (3) Noun. Plural form (funds). Financial resources; finances. (4) Noun. Plural form (funds). Another term for `working' capital'. (5) Noun: Plural form written with capital F (Funds). British Government stocks. (Originally, before the creation of the consolidated fund, the taxes or funds charged with repayment of loans; then the loans themselves.) (6) Verb. To. provide for a financial obligation by borrowing money for a fixed period, especially for a long period. (7) Verb. To provide for a future financial obligation by setting aside' ' money and lending it to earn interest; to create a sinking fund."

11. A perusal of the above definitions leave no room for any doubt that the provision for gratuity created by the assessee amounts to gratuity fund. It was specifically pleaded on behalf of the applicant before the learned CIT(A) and the contention was reiterated before us that the applicant's practice was to accrue the liability of gratuity from year to year and to- credit the said amount to the individual members of the staff according to his entitlement, who thereafter drew against the credits of the said gratuity. It means that the provision for a gratuity was earmarked for the specific purpose of payment of gratuity to the employees and discharge of such liability in future. Thus, the `provision for gratuity' has all the attributes of a `gratuity fund' but admittedly this gratuity fund is not approved and, therefore, by virtue of specific bar', contained in section-24(g) of the Income Tax Ordinance, 1979 the claim was not admissible. The treatment meted out to the application by the learned two officers below was, therefore, confirmed for the above reasons. As already observed the issue has been considered at length by various Benches of this Tribunal in large number of cases and, therefore; in subsequent orders the entire discussion was not made. We have discussed one aspect of the issue in this order for the reason that Mr. Sirajul Haq Memon stated that the previous judgments of this Tribunal are not reported, therefore, he is not aware of the reasons prevailing with this Tribunal for disallowing the claim on account of gratuity in the cases of unapproved gratuity funds. In the earlier judgments various other faces of the issue have been considered which we need not to advert in the present order.

12. The above discussion shows clearly and amply that the provision of law contained in section 24(g) is very simple and there is no ambiguity requiring interpretation by the Hon'ble High Court. We, therefore, by placing reliance on the judgment of the Hon'ble Karachi Bench of Erstwhile West Pakistan High Court, reported as 1967 PTD 265 and the judgment of Hon'ble Supreme Court of Pakistan 1970 SCMR 872 refuse to refer the proposed questions to the Hon'ble High Court and reject the reference applications. It has been clearly observed by the Hon'ble Supreme Court of Pakistan that every question of law must not be referred to the Hon'ble High Court. Only such questions should be referred which have some substance. The Hon'ble Judges of West Pakistan High Court Karachi Bench have held that such questions, answers to which are patently clear and free from any doubt should not be referred to the Hon'ble High Court.

13. The reference applications stand rejected accordingly. M.BA./49/T.T. Applications rejected.