Circular No. 110

What this is

Circular No. 110 was issued by the Central Board of Direct Taxes on 13 April 1973. Its subject is 311. Contribution to recognised provident fund - Trustees of funds allowed to make provision that payment to nominee will be sufficient discharge of liabilities - Clause (iv) of sub-section (1) read with rules 67A and 101A of Income-tax Rules.

What it does

Lets recognised provident fund rules give trustees a discharge on payment to a nominee. Under rules 67A and 101A of the Income-tax Rules the nominee becomes entitled to receive the money at the subscriber's credit without producing probate or letters of administration, and it is left to the trustees to satisfy themselves that the nominee will deal with the money properly, and even to insist on a proper grant of representation before paying. The Board decides that trustees may include in their provident fund rules a provision that payment to the nominee or nominees is a sufficient discharge of the trustees' liabilities and that no claim will lie thereafter, and that a trust deed containing such a provision should not be refused recognition if the other prescribed conditions are satisfied.

Why it was issued

The Punjab, Haryana and Delhi Chamber of Commerce and Industry approached the Board for amendment of rules 67A and 101A, pointing out that on payment to a nominee those rules gave the trustees no discharge against future claims and liabilities.

Who it reaches

• Trustees of recognised provident funds making payment on a subscriber's death
• Employers seeking recognition of a provident fund trust deed
• Nominees and legal heirs of deceased subscribers
• Commissioners considering recognition applications

The instrument, as the Board published it

311. Contribution to recognised provident fund - Trustees of funds allowed to make provision that payment to nominee will be sufficient discharge of liabilities - Clause (iv) of sub-section (1) read with rules 67A and 101A of Income-tax Rules
1. The Punjab, Haryana. and Delhi Chamber of the Commerce and Industry have approached the Board for amendment of rules 67A and 101A of the Income-tax Rules, as these rules, in case of payments to the nominee or nominees, do not give discharge to the trustees of the funds against all future claims and liabilities.
2. Under the provisions of rules 67A and 101A of the Income-tax Rules, the nominee becomes entitled to receive the monies standing at the credit of the subscriber without any specific requirement of producing probate or letter of administration to the estate of the deceased. It is left to the trustees to satisfy themselves that nominees will deal with the monies in the proper manner and if they feel it necessary they may even insist on their producing a proper grant of representation to the estate of the deceased before making the payment. The Board has, therefore, decided that the trustees of the funds may be allowed to make a provision in their provident fund rules that the payment to the nominee or nominees will be sufficient discharge of the liabilities of the trustees and no claim in future will lie. The trust deeds containing such a provision should, therefore, not be refused recognition if the other conditions prescribed under the rules are satisfied
Circular : No. 110 [F. No. 215/172-IT(A-II)], dated 13-4-1973.

What to watch

• The Board did not amend the rules; it permitted a clause in the fund's own rules, so the discharge depends on the trust deed actually containing it.
• The trustees' discretion under rules 67A and 101A survives — they may still call for a grant of representation before paying if they think fit.
• Recognition still turns on the other prescribed conditions being satisfied; this clause alone does not carry it.
• The circular deals with the trustees' position and does not settle the rights of heirs against the nominee.

Where you meet it

On an application for recognition of a provident fund, or where the trustees hesitate to pay a nominee without a succession certificate.

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