Approved superannuation funds: later pension enhancements do not extend to existing pensioners, and related rules were upheld.

In an approved superannuation fund, an employee's annuity crystallises on retirement when the annuity is purchased, so later improvements to the scheme do not extend to existing pensioners because no remaining corpus exists for that purpose. The challenge to rule 11(1)(cc) of Part B of Schedule IV and rules 89 and 91 of the Income-tax Rules failed because the rule-making power was confined to protecting fund moneys and securing annuity payments, with parliamentary control providing an additional safeguard. The amendment including commission of a whole-time director within salary was also upheld as consistent with the statutory scheme and not discriminatory or illegal.

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Issues: (i) Whether existing pensioners under an approved superannuation fund were entitled to claim the benefit of later improvements made to the pension scheme; (ii) Whether rule 11(1)(cc) of Part B of Schedule IV to the Income-tax Act, 1961 and rules 89 and 91 of the Income-tax Rules, 1962 were arbitrary or amounted to excessive delegation; (iii) Whether the amendment expanding the definition of salary to include commission of a whole-time director was invalid.

Issue (i): Whether existing pensioners under an approved superannuation fund were entitled to claim the benefit of later improvements made to the pension scheme.

Analysis: The right of an employee to receive annuity under an approved superannuation fund becomes fixed when the annuity is purchased on retirement. The employer's contribution in respect of a retired employee is then withdrawn from the fund to purchase the annuity, so there is no remaining corpus from which later improvements can be financed for that pensioner. Subsequent enhancements in the fund can therefore operate only for members still in service whose contributions continue to form part of the fund. The principle in D. S. Nakara was held inapplicable because that case concerned pension payable from general public revenue, unlike a privately funded approved superannuation scheme based on fixed employer contributions and actuarial valuation.

Conclusion: The claim to extend later improvements to existing pensioners was rejected.

Issue (ii): Whether rule 11(1)(cc) of Part B of Schedule IV to the Income-tax Act, 1961 and rules 89 and 91 of the Income-tax Rules, 1962 were arbitrary or amounted to excessive delegation.

Analysis: The statutory scheme of approved superannuation funds is designed to safeguard trust money and secure annuity payments to beneficiaries. The rule-making power under rule 11(1)(cc) was held to be confined to regulating investment or deposit of fund moneys for that protective purpose, and therefore not an unguided or arbitrary delegation. Rule 89, which requires annuity procurement through the Life Insurance Corporation of India, was upheld because the prescribed mode provides security backed by a Government guarantee. Rule 91, denying a beneficiary any proprietary interest in the insurance policy and limiting entitlement to annuity, was also upheld since the annuity is actuarially structured and there is no unjust enrichment of the insurer. The existence of parliamentary control under section 296 further operated as a check on rule-making.

Conclusion: The challenge to rule 11(1)(cc) and rules 89 and 91 failed.

Issue (iii): Whether the amendment expanding the definition of salary to include commission of a whole-time director was invalid.

Analysis: The amended definition aligned with the meaning of salary recognised in rule 2(h) of Part A of the Fourth Schedule to the Income-tax Act, 1961 and with the principle that commission paid under the terms of employment may form part of salary. The petitioners who had retired before the amendment were not adversely affected by it, and no discrimination or illegality was shown.

Conclusion: The amendment was upheld.

Final Conclusion: The approved superannuation fund scheme, including the impugned rules and the related amendment, was held to be valid, and no constitutional or statutory infirmity was found in the challenged provisions.

Ratio Decidendi: In an approved superannuation fund, the annuitant's entitlement crystallises on purchase of the annuity, and subordinate rules framed to secure the fund and regulate annuity payments are valid if they are rationally connected to the statutory purpose and do not impose arbitrary delegation.

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