Report No. 12

Chapter XXV

Approved Superannuation Funds

Notes to clause 306

No comments are needed.

Notes to clause 307

Sub-clause (1).- In the opening lines, it has been provided that the superannuation fund must satisfy not only the conditions set out in the section but also the conditions to be prescribed by rules to be made by the Central Government. This addition has been made to secure uniformity1 with the corresponding provision relating to recognised provident funds. [See existing section 58C(1), [opening lines].

1. Cf. notes to clause 317, "General".

Sub-clause (2).- The proviso to existing section 58P is merely classificatory. It has been embodied in sub-clause (2).

Sub-clause (3l).- This is new and has been added to secure uniformity with the corresponding provision relating to recognised provident fund-see existing section 58C(2).

Notes to clause 308

It has been made clear that the application for approval is to be made to the Income-tax Officer by whom the employer is assessable.

The word "year" has been replaced by the expression "assessment year" or "previous year", as considered appropriate.

Notes to clause 309

General

Existing section 58R and 58S have, for the sake of clarity, been broken up so as to deal separately with the following:-

(1) Income from investment.

(2) Employer's contribution-deduction for.

(3) Employee's contribution-when exempted.

(4) Contributions paid to the employee-when deemed to be income.

(5) Deduction of tax on contributions paid to an employee.

Existing section 58R, relating to exemption in respect of superannuation funds, combines a number of provisions. These provisions embody exemptions falling under various categories. For example, the opening lines direct that income derived from investments of such funds shall be "exempt from payment of income-tax"; while the subsequent lines provide that "any sum paid by an employer by way of contribution shall be deducted in computing the income ".

It is obvious that the first exemption is in the nature of an exclusion from total income, while the second is a deduction for expenses. In order to bring out clearly the nature of the various exemptions contained in existing section 58R, its various portions have, in the draft, been allocated to various clauses according to the topic dealt with, thus-

(i) the opening lines relating to income from investment etc., have been embodied in this clause. That provision applies in respect of super-tax also under existing section 58. The provision is more in the nature of exclusion from total income and should be treated on the same lines as income received by trustees on behalf of a recognised provident fund, see existing section 4, sub-section (3), item (ix);

(ii) the middle portion of section 58R, main para, dealing with sums paid by employer, has been placed in a separate clause1;

1. See draft clause 310.

(iii) the last portion of section 58R, main para, has been dealt with in another clause1 with certain drafting changes which are discussed below; the first Proviso to section 58R has also been incorporated in that clause1;

1. See Draft Clause 311.

(iv) the second Proviso relates to employer's contributions and has been placed along with the middle portion of the main para1.

1. Vide draft clause 310, Proviso.

Section 58R says: "any sum paid by an employer or an employee by way of contribution.........shall in the case of an employer be deducted in computing his income.......and in the case of an employee be treated for all the purposes of this Act as if it were a sum to which the provisions of section 15 apply;

Provided that no such exemption shall be allowable to an employee in respect of any sum which is not an ordinary annual contribution."

The existing language, at first reading, would mean that both the sum paid by the employer and the sum paid by the employee are to be allowed as a deduction in the case of an employer, and that similarly both the sums are to be allowed exemption in the case of an employee. But, obviously, this is not the intention. Only a sum paid by the employer is to be allowed as a deduction in the employer's assessment, and similarly only a sum paid by the employee is to be allowed deduction in the employee's assessment. Since the case of the employer and the case of the employee have, in the draft, been treated at different places, the need for any clarification does not arise.

Notes to clause 310

See notes to the proceeding clause1.

1. Clause 309.