1996 (11) TMI 5 - SC - Income Tax

Approved superannuation fund is set up only from the contributions made by the employer who is given certain tax benefits in order to encourage the setting up of such superannuation funds. We do not see any reason to strike down any part of the scheme for such a superannuation fund prescribed under the Income-tax Act 1961 and the Income-tax Rules 1962 - petition is therefore dismissed - Rule 89 is not arbitrary - Rule 91 cannot be considered as giving any unjust gains to the LIC of India.

Issues Involved:
1. Denial of benefits of pension improvements to existing pensioners.
2. Challenge to the validity of rule 11(1)(cc) of Part B of Schedule IV to the Income-tax Act, 1961.
3. Challenge to the validity of rules 89 and 91 of the Income-tax Rules, 1962.
4. Allegation of excessive delegation of power.
5. Appropriation of the purchase price of annuities by the Life Insurance Corporation of India.
6. Objections to changes made in the Indian Oxygen Limited Executive Staff Pension Fund in 1984 and 1985.

Detailed Analysis:

1. Denial of Benefits of Pension Improvements to Existing Pensioners:
The petitioners contended that improvements in the executive staff pension fund of Indian Oxygen Ltd. in 1985 should be extended to existing pensioners, arguing that the denial of such benefits is arbitrary and violative of Article 14 of the Constitution. The court clarified that the right of an employee to receive an annuity and its quantum gets determined at the time of purchase of the annuity. Any subsequent improvements in the pension scheme do not apply to those whose rights are already crystallized. The improvements are based on the fund's financial position and future contributions, which are not applicable to past employees. Therefore, the denial of benefits does not violate Article 14.

2. Challenge to the Validity of Rule 11(1)(cc) of Part B of Schedule IV to the Income-tax Act, 1961:
The petitioners argued that rule 11(1)(cc) confers unguided power to the Board to frame rules, making it arbitrary and violative of Articles 14 and 19(1)(g). The court held that the rule-making power is intended to ensure the safety of the fund, which is established under an irrevocable trust for the benefit of employees. The power to regulate the investment or deposit of funds is not arbitrary but necessary to secure the beneficiaries' annuities.

3. Challenge to the Validity of Rules 89 and 91 of the Income-tax Rules, 1962:
The petitioners claimed that rules 89 and 91 are arbitrary and violate Articles 14 and 19(1)(g). The court found that these rules are designed to safeguard the funds and ensure the security of the annuities. Rule 89 mandates the purchase of annuities from the Life Insurance Corporation of India, backed by a government guarantee, ensuring the safety of the funds. Rule 91 ensures that beneficiaries have no interest in insurance policies but are entitled to annuities, thereby preventing misuse of the funds.

4. Allegation of Excessive Delegation of Power:
The petitioners alleged that the rules suffer from excessive delegation of power. The court noted that all rules made under rule 11 are subject to parliamentary oversight as per section 296 of the Income-tax Act, providing an important check on arbitrary rule-making. Therefore, the delegation of power is not excessive.

5. Appropriation of the Purchase Price of Annuities by the Life Insurance Corporation of India:
The petitioners argued that the appropriation of the purchase price of annuities by the Life Insurance Corporation after the death of the annuitant is ultra vires and constitutes arbitrary use of power. The court explained that the annual instalment of annuities includes both interest and capital. The Life Insurance Corporation's new annuity scheme allows existing members to switch over, ensuring no unjust enrichment. Hence, rule 91 does not result in unjust gains for the Life Insurance Corporation.

6. Objections to Changes Made in the Indian Oxygen Limited Executive Staff Pension Fund in 1984 and 1985:
The petitioners objected to the inclusion of commission in the definition of "salary" for whole-time directors. The court noted that the change aligns with the decision in Gestetner Duplicators P. Ltd. v. CIT, where commission as part of remuneration falls within the definition of "salary" under rule 2(h) of Part A of the Fourth Schedule to the Income-tax Act. This change does not affect the petitioners who retired before 1984 and does not constitute discrimination.

Conclusion:
The court dismissed the petition, upholding the validity of the rules and the scheme of the superannuation fund under the Income-tax Act and Rules. The denial of benefits to existing pensioners, the rule-making power of the Board, and the appropriation of annuities by the Life Insurance Corporation were all found to be in compliance with the law and not arbitrary or discriminatory.

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