Rule 298 — Withdrawal of recognition.
Sub-rule (1) gives the approving authority the right to revoke recognition given to a provident fund if it fails to meet the conditions outlined in Part A of the Fourth Schedule to the Income-tax Act, 1961 as it existed prior to its repeal, or Part A and Part C of Schedule XI to the Act, or subsequent conditions set after recognition was granted under that Act of 1961 and the Act; and provides that if the exemption granted under section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 is withdrawn under sub-section (4) of section 17 of that Act, the recognition may be withdrawn.
Sub-rule (2) requires that before withdrawing recognition the approving authority shall give an opportunity to the employer and the trustees of the fund to show cause why recognition should not be withdrawn.
Recognition of a provident fund is granted once but the conditions attaching to it run continuously, and the tax treatment of contributions and accumulations depends on the fund still satisfying them. The rule gives the approving authority the power to revoke where they are not met, and expressly carries the conditions of the repealed 1961 Schedule through alongside Schedule XI, so that funds recognised under the old law are tested on the terms on which they were recognised. It also ties the fund's tax recognition to its labour-law exemption, and then puts a hearing in front of any withdrawal.
Three separate sources of condition can trigger revocation and they operate together: Part A of the Fourth Schedule to the 1961 Act as it stood before repeal, Part A and Part C of Schedule XI to the Act, and any conditions imposed after recognition was granted. A fund recognised long ago cannot therefore say that only the current Schedule matters. The withdrawal of the section 17 exemption under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 is a distinct trigger, and the rule frames the consequence as one that may follow rather than one that must. Whatever the trigger, sub-rule (2) makes the hearing mandatory and gives it to two parties, the employer and the trustees, so notice to one is not enough.
A recognised provident fund stops satisfying a condition in Part C of Schedule XI. The approving authority proposes to withdraw recognition and, before doing so, issues a show cause notice to both the employer and the trustees of the fund and hears them. If the fund's exemption under section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 had instead been withdrawn under sub-section (4) of that section, that would itself have opened the way to withdrawal of recognition.
An employer and the trustees meet this rule in a show cause notice from the approving authority proposing to withdraw recognition, and in the order that follows; employees meet it only in the changed tax treatment of the fund thereafter.
Before withdrawing recognition, the approving authority shall give an opportunity to the employer and the trustees of the fund to show cause why recognition should not be withdrawn.
