Applicability of Part B 4th Schedule to superannuation fund with restrictive clause. - Income Tax - 1409/CBDT

INSTRUCTION NO. 1409/CBDT Dated: July 23, 1981 A number of references have been received by the Board for re-considering the question whether the Superannuation fund created by an employer for providing pension benefits to the employees under a trust deed having a restrictive clause by way of granting the employer a right to discontinue the scheme could be accorded approval under Part B of the 4th schedule to the I.T. Act, 1961. 2. The board had earlier on 27-10-69 taken a view that such reservation of power on the part of the employer to discontinue the fund offends clauses a and c of rule 3 of the part B of schedule IV and as such the fund does not merit approval. 3. The question has been re-examined in consultation with the Ministry of Law. As for as clause c rule 3 is concerned, what is to be seen is whether the reservation of power of dis-continuance of scheme would make the trust revocable and therefore offends the said clause. We have been further advised that any reservation of power to discontinue the scheme does not automatically make a fund created under an irrevocable trust revocable. If the employer discontinues the scheme even then the trust continues to exist. The trust money as vested in the trustees continues in their hands. Therefore such a power does not offend clause (a) of rule 3. This reservation of power to discontinue the scheme also does not offend clause (c) of rule 3. This condition only requires the employer to contribute to the fund so long as he intends or is able to do so. 4. Thus the approval of a superannuation fund need not be withheld only on the ground of such a power being vested with the employer. If any of the events specified above takes place the commissioner may consider taking appropriate action under the rules including withdrawing the approval under rule 2. 5. The earlier views of the board stand modified to the above extent. These instructions may please be kept in view while considering the cases of approval of superannuation funds.