Subsisting approval for a superannuation fund bars denial of exemption by the Assessing Officer on alleged non-compliance.

An Assessing Officer cannot deny exemption under Section 10(25)(iii) by treating a superannuation fund as unapproved while a competent authority's approval remains subsisting. Under the Fourth Schedule rules, approval and withdrawal of approval lie with the Chief Commissioner or Commissioner, who must record reasons and give a reasonable opportunity of hearing; any dissatisfaction with compliance must be placed before that authority. The Assessing Officer has no jurisdiction to disregard the approval or to effect withdrawal indirectly on alleged non-compliance. The assessee was therefore entitled to the exemption, and the contrary view was unsustainable.

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Issues: Whether the Assessing Officer could deny exemption under Section 10(25)(iii) of the Income-tax Act, 1961 by treating the fund as unapproved, when the approval granted by the competent authority had neither been withdrawn nor cancelled.

Analysis: Exemption under Section 10(25)(iii) is available to income received by trustees on behalf of an approved superannuation fund. Under Rule 2(1) of Part-B of the Fourth Schedule to the Income-tax Act, 1961, approval and withdrawal of approval are within the power of the Chief Commissioner or Commissioner, and withdrawal can be made only for reasons recorded and after giving a reasonable opportunity of being heard. Rule 4(2) provides for deemed withdrawal in a defined situation, but even that operates subject to the order of the Chief Commissioner or Commissioner. Rule 8 makes withdrawal orders appealable, reinforcing that the power is vested in the competent authority and is quasi-judicial in nature. The Assessing Officer has no power under the rules to undo or ignore a subsisting approval on the ground of alleged non-compliance with conditions, and any dissatisfaction with compliance must be placed before the competent authority.

Conclusion: The Assessing Officer lacked jurisdiction to deny the exemption while the approval remained in force, and the assessee was entitled to the benefit of Section 10(25)(iii).

Final Conclusion: The Tribunal's order was unsustainable because it permitted denial of exemption on a ground that only the competent approving authority could examine for withdrawal of approval; the appeal was therefore allowed in favour of the assessee.

Ratio Decidendi: Where approval of a fund under the relevant rules continues and has not been withdrawn by the authority empowered to withdraw it, the Assessing Officer cannot disregard that approval or deny the corresponding exemption on an alleged breach of conditions.

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