Approved superannuation fund approval cannot be withdrawn mechanically without first deciding whether disputed sums were excess contributions.
Withdrawal of approval of an approved superannuation fund under Rule 91(2) could not be justified without first determining whether the disputed payment was in fact an excess contribution made by mistake. The court noted that Rule 5 of Part B of the Fourth Schedule and the law of restitution may apply where an employer seeks repayment of excess contributions, and that Rule 91(2) should not be applied mechanically. Because the factual dispute over excess payment, quantum, and the effect of the settlement had not been properly examined, the withdrawal order was set aside and the matter remitted for fresh decision after hearing the parties.
Issues: (i) Whether the order withdrawing approval granted to the approved superannuation fund under Rule 91(2) of the Income Tax Rules, 1962 was justified; (ii) Whether the alleged excess contribution by the employer and the alleged refund thereof had to be examined in the light of Rule 5 of Part B of the Fourth Schedule to the Income-tax Act, 1961 and the settlement placed before the authorities.
Issue (i): Whether the order withdrawing approval granted to the approved superannuation fund under Rule 91(2) of the Income Tax Rules, 1962 was justified.
Analysis: Part B of the Fourth Schedule to the Income-tax Act, 1961 governs approved superannuation funds. Rule 2 permits grant and withdrawal of approval, while Rule 5 recognises that contributions repaid to the employer may be treated as income of the employer. Rule 91(2) prohibits transfer of money from the fund to the employer, but that prohibition was not to be applied mechanically without examining whether the amount refunded was in truth an excess contribution made by mistake. The impugned order did not address that factual and legal controversy.
Conclusion: The withdrawal order was not sustained and required reconsideration.
Issue (ii): Whether the alleged excess contribution by the employer and the alleged refund thereof had to be examined in the light of Rule 5 of Part B of the Fourth Schedule to the Income-tax Act, 1961 and the settlement placed before the authorities.
Analysis: The controversy whether the employer had made excess payment, the quantum of such payment, and the effect of the settlement accepted by the Karnataka High Court was a mixed question of fact and law. A payment made by mistake may attract the principle of restitution under Section 72 of the Contract Act, 1872. If the alleged excess contribution was proved, Rule 5 of Part B of the Fourth Schedule could support repayment to the employer and Rule 91(2) would not automatically justify withdrawal of approval. Since the income-tax department had not accepted the factual position or the quantum, the authority had to decide the show-cause notice afresh after considering the material and the settlement.
Conclusion: The matter had to be reconsidered by the authority on the factual issue of excess payment and its legal consequences.
Final Conclusion: The impugned order was set aside and the matter was remitted to the income-tax authority for fresh decision after hearing the parties and passing a reasoned order.
Ratio Decidendi: A withdrawal of approval of an approved superannuation fund cannot rest on Rule 91(2) alone without first determining whether the disputed payment was in fact an excess contribution recoverable under the governing scheme and the law of restitution.
TaxTMI 
AI Drafter ✕
TaxTMI 
