Rule 323 — Assigning or creating a charge on beneficial interest in a gratuity fund.
The rule deals with an employee who deals with his beneficial interest in a gratuity fund. If an employee assigns or creates a charge upon his beneficial interest in a gratuity fund, the Assessing Officer shall give notice to the employee that if he does not secure the cancellation of the assignment or charge within two months of the date of receipt of the notice, the consideration received for the assignment or charge shall be deemed to be income received by him in the tax year in which the fact became known to the Assessing Officer and shall be assessed accordingly.
A gratuity fund holds money for an employee's benefit on terms that carry tax advantages, and those terms assume the interest stays with the employee until it is paid out. Assigning it or charging it turns the interest into present value in the employee's hands. Rather than tax that at once, the rule gives him a way back: a notice, two months to undo the transaction, and a deemed income charge only if he does not.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Time allowed to secure cancellation of the assignment or charge | Within two months | From the date of receipt of the notice given by the Assessing Officer | Rule 323 |
| Amount deemed to be income if the assignment or charge is not cancelled | The consideration received for such assignment or charge | Deemed to be income received in the tax year in which the fact became known to the Assessing Officer | Rule 323 |
The charge is not automatic; it follows a notice and a failure to act on it. The two months runs from the date of receipt of the notice, not from the assignment or from the date of the notice, so the employee's window is measured from when it reaches him. What is required within the window is cancellation of the assignment or charge — securing that cancellation, not merely applying for it or promising it. The amount deemed to be income is the consideration received for the assignment or charge, which may be far less than the interest itself, and the year of charge is fixed by an event on the Department's side: the tax year in which the fact became known to the Assessing Officer, not the year of the assignment. The rule catches a charge as well as an outright assignment, so borrowing against the interest is within it.
An employee assigns his beneficial interest in a gratuity fund for Rs 3,00,000 and the Assessing Officer learns of it two years later and issues a notice, which the employee receives on 10 June. If the assignment is not cancelled by 10 August, Rs 3,00,000 is deemed to be his income received in the tax year in which the fact became known to the Assessing Officer and is assessed accordingly. Securing cancellation within the two months leaves nothing to be charged under the rule.
You meet it in a notice from the Assessing Officer about a dealing with a gratuity fund interest, and in the assessment for the year in which that dealing came to the officer's knowledge.
if he does not secure the cancellation of the assignment or charge within two months of the date of receipt of the notice, the consideration received for such assignment or charge shall be deemed to be income received by him in the tax year in which the fact became known to the Assessing Officer
