Amount standing in PPF account immune from attachment- to achieve the purpose, amount en-cashed or transferred in other account must also have such immunity.

[CA DEV KUMAR KOTHARI]

In case of Dineshchandra Bhailalbhai Gandhi Versus Tax Recovery Officer 2014 (2) TMI 849 - GUJARAT HIGH COURT ** held that as long as an amount remains invested in a PPF account of an individual, the same would be immune from attachment from recovery of the tax dues . However, Court further expressed view that “The situation may change as and when such amount is withdrawn and paid over to the subscriber”.

The court considered provisions of Section 9 of the Public Provident Fund Act, 1968, Rule 10 of Schedule-II to the Income-tax Act, 1961 and section 60 of the Civil Procedure Code and also rulings in the following cases : Union of India v. Radha Kissen Agarwalla & Anr., 1968 (12) TMI 92 - SUPREME COURT OF INDIA , Union of India v. Jyoti Chit Fund and Finance & Ors., reported in 1976 (3) TMI 228 - SUPREME COURT OF INDIA.

Social security: Long-term savings in schemes like PF, PPF, Life insurance etc. are for social security. The amount standing credited in such accounts cannot be used in case of need. Therefore, as and when requirements arise, the subscriber either takes a loan or withdraw money from such schemes. Therefore for the ultimate purpose of social security, the money need t come in hands on subscriber. Payment from PPF etc. are made either in cash (small amounts) or by A/c payee cheque or draft. Amount received on withdrawal is therefore required to be kept either in cash or to be deposited in other bank account. Therefore cash balance or bank balance out of such withdrawals should also have immunity from attachment. Otherwise purpose of immunity from attachment shall be defeated.

The Courts have held that “as long as an amount remains invested in PPF…” and there is no clarity about what happens after withdrawal or transfer in other bank account.

Further immunity in respect of amount withdrawn is desirable:

To achieve the purpose of long-term saving and social security, it is desirable that the immunity from attachment should also apply to the amount withdrawn from such schemes and kept in cash or bank account so that a subscriber who has saved money over a long period of time, with a view to have some  social security for himself and family , can in reality available the benefit of the same for such purposes and is not taken away due to unforeseen liability which may accrue in far distant future.

Suppose a person has saved money in EPF, PPF, Life insurance policies etc. during his working life. After retirement he had done some business, and suffered loss or there is some disputed tax liability.

There is no other money left for survival, the subscriber has to en-cash EPF, PPF and life insurance policies. The amount received / withdrawn is deposited in a saving bank account and then it is attached by tax authorities, or other creditors.

If such attachment is allowed, we find that the purpose of immunity is totally lost. Therefore, there must be clear provisions that amounts which enjoyed immunity from attachments will remain immune from attachment even after withdrawal of the amount from such schemes.

References and links:

** Source: http://www.taxmanagementindia.com/Print/print_case_laws.asp?ID=244255

Section 9 of the Public Provident Fund Act, 1968

Rule 10 of Schedule-II to the Income-tax Act, 1961

Union of India v. Radha Kissen Agarwalla & Anr., 1968 (12) TMI 92 - SUPREME COURT OF INDIA

Union of India v. Jyoti Chit Fund and Finance & Ors., reported in 1976 (3) TMI 228 - SUPREME COURT OF INDIA.