315. Contribution to approved superannuation fund – Whether pension benefits can be provided to employees under rule 89 of Income-tax Rules in the form of “annuity certain” also
1. An assessee is entitled under section 36(1)(iv) of a deduction of any sum paid as an employer by way of contribution towards an approved superannuation fund subject to such limits as may be prescribed by the Board or such conditions as the Board may think fit to specify.
2. As per rule 89 of the Income-tax Rules, 1962, the trustees may either enter into a scheme of insurance with Life Insurance Corporation (LIC) or accumulate the contribution in respect of each beneficiary and purchase annuity from the LIC at the time of retirement or death of each employee or on his becoming incapacitated prior to retirement.
3. These annuities can be either “annuity certain”, i.e., an annuity payable for a fixed term of years and independent of any contingency, or it may be an annuity which depends upon a contingency for example dependent on human life.
4. A question has arisen as to whether pension benefits can be provided to the employees under rule 89 of the said Rules in the form of an “annuity certain” also. The question has been examined in consultation with the Ministry of Law. It is pointed out that rule 89 refers to the purchase of an annuity from the LIC at the time of retirement or death of each employee or on his becoming incapacitated prior to retirement and rule 90 lays down the condition that only one-third of such annuity can be commuted having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality. Rule 3(b) of Part B of the Fourth Schedule also clarifies that the sole purpose of such fund would be the provision of annuities for employees on their retirement or on their becoming incapacitated prior to such retirement, or for the widows, children or dependants of persons who are or have been such employees on the death of those persons. Rule 6 also provides for taxing the contributions paid to an employee during the lifetime in circumstances other than those referred to in section 10(13).
5. In view of all these provisions, the Board are advised that a superannuation fund, where rules provide for pension benefits in the form of “annuity certain”, is not entitled for approval as the same is not covered under rule 89 of the Income-tax Rules, 1962. It is desired that the cases of the funds already approved should also be reviewed and in case of funds where rules provide for pension benefits in the form of “annuity certain”, the trustees should be advised to make suitable amendments in the rules within a reasonable time, say, three months. The Commissioners of Income-tax may also consider the withdrawal of approval in cases where such necessary amendments are not effected in the rules.
Circular : No. 403 [F. No. 216/7/84-IT(A-II)], dated 5-12-1984.