Circular No. 595

What this is

Circular No. 595 was issued by the Central Board of Direct Taxes on 5 March 1991. Its subject is 1335. Clarification regarding winding up of superannuation funds.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Carries the Board's rule on winding up approved gratuity funds across to approved superannuation funds. Just as a gratuity fund approved under the Act cannot be wound up unless the winding up or discontinuance of the employer's trade or undertaking makes it necessary, and cannot be revoked on a resolution of the trustees or beneficiaries, so an approved superannuation fund cannot be wound up except where the employer's trade or undertaking is wound up or discontinued. The Board rests this on rules 93 and 94 being analogous to rules 107 and 108, and on rule 3(a) of Part B of the Fourth Schedule requiring a superannuation fund to be established under an irrevocable trust in connection with a trade or undertaking.

Why it was issued

The Board had been asked to consider whether an approved superannuation fund may be wound up only when the undertaking of the assessee is wound up or discontinued.

Who it reaches

• Trustees of approved superannuation funds
• Employers seeking to close a superannuation fund while the business continues
• Commissioners dealing with withdrawal of approval

The instrument, as the Board published it

1335. Clarification regarding winding up of superannuation funds
1. The Board had clarified earlier that a gratuity fund, approved under the Income-tax Act, cannot be wound up unless it is neces­sitated by the winding up or discontinuance of the employer’s trade or undertaking, and that the revocation of a gratuity fund cannot be permitted on the basis of a resolution of the trustees and/or beneficiaries.
2. The Board has been requested to consider whether an approved superannuation fund can be allowed to be wound up only when the undertaking of the assessee is wound up or discontinued.
3. Rules 93 and 94 of the Income-tax Rules, relating to superan­nuation funds, are analogous to rules 107 and 108 of the Income-tax Rules relating to gratuity funds. Further rule 3(a) of Part ‘B’ of the Fourth Schedule to the Income-tax Act prescribes that superannuation funds should be established under an irrevocable trust in connection with a trade or undertaking.
4. The Board has, therefore, been advised that an approved super­annuation fund also cannot be wound up unless necessitated by the winding up or discontinuance of the employer’s trade or undertak­ing.
Circular : No. 595, dated 5-3-1991.

What to watch

• A resolution of trustees or beneficiaries is not enough; the trust is irrevocable by rule 3(a) of Part B of the Fourth Schedule.
• The trigger is winding up or discontinuance of the trade or undertaking, not a change in the employer's benefit policy.
• The reasoning is drawn from the gratuity fund position, so the two sets of rules should be read together.
• Rules 93 and 94 and Part B of the Fourth Schedule should be checked as they stand for the period in question.

Where you meet it

When trustees apply to wind up a superannuation fund and the Commissioner questions whether the fund may be revoked at all.

What it names

Rules it names. Rule 3 of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.

← Circular No. 596  ·  Circular No. 594 →