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CA Final · Direct Tax Laws & International Taxation · Miscellaneous Provisions

Mahesh, an employee of Orion Engineering Ltd, is a member of a recognised provident fund. The approving authority finds that the fund failed a condition under Part A of the Fourth Schedule as it existed before repeal, and proposes to withdraw recognition. Under Rule 298 of the Income-tax Rules, 2026, which is correct?

Recognition can be withdrawn only after the employer and the trustees of the fund are given an opportunity to show cause why it should not be withdrawn. Failure of the Fourth Schedule conditions is a ground, but a prior hearing is mandatory.

  1. AThe approving authority may revoke recognition without any hearing since the default is established
  2. BRecognition may be withdrawn only after the employer and the trustees of the fund are given an opportunity to show causeCorrect
  3. CRecognition can be withdrawn only if the exemption under section 17 of the EPF and Miscellaneous Provisions Act, 1952 is also withdrawn
  4. DOnly the employee Mahesh must be given a show cause opportunity

Explanation

Rule 298(1) lets the approving authority revoke recognition where conditions are not met. Rule 298(2) requires giving the employer and the trustees an opportunity to show cause before withdrawal. The withdrawal of section 17 exemption is only one additional ground, not the sole one. The employee is not the party named for the show cause.

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