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Treatment of interest for amount retained in recognised PF

It is inferred from the copy of the reply enclosed by the reader that no appeal was filed against the adverse order of the assessing officer but a complaint was made to the Ombudsman and such complaint was treated as an application for rectification under Sec. 154, which was also rejected in that view, that the amount was not exempt under Sec. 10(12) on the ground that it does not fall within the ambit of receipt under Rule 8 of the Part A of the Fourth Schedule. Exemption of interest from recognised provident fund is mandatory under Sec. 10(12) of the Income-tax Act. Rule 8 of Part A of Fourth Schedule provides for exemption of repayment with exception only where the employee has been a member of such fund for less than five years. Rule 10 requires tax deduction at source only in such cases, where it is taxable. Since such employee is entitled to draw his fund on his retirement, a view has been taken in some quarters that any interest credited to such account after retirement should be taxable and that it is liable for tax deduction at source in view of the requirement of tax deduction from the taxable part of money returned.

The answer, which was given in The Hindu dated February 14, 2005 cited the statutory provision and the rationale of the decision of the Supreme Court in Gestetner Duplicators P. Ltd. v CIT (1979) 117 ITR 1 (SC), wherein it was held that in a similar situation as long as recognition of the fund by the Commissioner stands, the assessing officer is bound to honour the exemption. The assessing officer’s reply enclosed misunderstands Rule 8 and Rule 10 of Part A of Schedule IV, while requiring TDS only from taxable part, which arises only on interest payment in excess of prescribed rate or on resignation or retirement before completion of five years.

An unreported decision of the Tribunal is referred without making it available to the reader, so that it is not possible to show, where it has erred and whether the decision is on same facts. The assessing officer may have his own interpretation but where such interpretation is not acceptable, remedy for assessee is to file an appeal within 30 days of receipt of the order. Ombudsman is not the proper forum for sorting out legal issues.

Apparently, the reader’s complaint was sent by the Ombudsman to the assessing officer, who has treated the complaint as an application for rectification. Appeal was possible both against original order and even against the rectification order within 30 days of receipt. Probably a belated appeal with a condonation petition may be entertained after condonation.

The assessee has to exercise the remedy in law, since no complaint to The Hindu or any other newspapers can avail individual taxpayers. If one is not diligent enough to exercise one’s right under the law in time, such right may well be lost.

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