Story of Income Tax Welfare Fund
THE CAG wants the Income Tax Welfare Fund to be wound up. In its latest report to the Parliament, the CAG has found the very constitution of the Fund invalid.
Ministry of Finance, Department of Revenue created the Income Tax Welfare Fund (ITWF) with a corpus of Rs. 100 crore. The Fund was created with the purpose of
(i) promotion of welfare, recreation and other outdoor activities of officials of the Income Tax Department,
(ii) providing financial help to officials during contingencies such as injuries or accidents,
(iii) providing ex-gratia payment to families of deceased officials,
(iv) providing different forms of medical maintenance including risk insurance for emergencies and serious distress to officials not fully reimbursable under CGHS reimbursement rules, and
(v) construction/hiring/leasing/furnishing/ maintenance of holiday homes for the use of officials, etc. The interest accruing on the corpus fund and additional accretions as specified in para 3 of Income Tax Welfare Fund rules 2007 shall be used for meeting the expenditure on the above purposes.
The CAG had not agreed to the creation of the Fund on the grounds that:
1. the activities proposed to be covered by the Fund could be included in the annual budget of the Department and be financed through the normal budgetary process.
2. The utilisation of the Fund would not be reported through the standard object heads as is the case with the demand for grants presented in the Parliament and hence, the process would not be transparent.
3. Further, the General Financial Rules (GFR) also do not permit expenditure from public moneys for the benefit of a section of people or individuals unless the expenditure was in pursuance of recognised policy or customs.
4. Further, if the objective was to cover officials/family members of officials who faced injury/death during search/seizure operations and provision of high risk insurance cover to the officials, provision could be made under a designated scheme of the Government of India or included in the existing provisions of any scheme for such purposes.
5. The other purpose cited could be covered under the standard object heads "Rewards", "Medical treatment", "Office expenses", "Grants-in-aid" in the demand for grants of the Ministry.
The matter was commented upon in the CAG's Audit Report for the year 2008-09, 2010-11, 2011-12 and 2012-13.
The Ministry, in its Action Taken Note of September 2010, stated that the Fund was created after extensive examination in January 1998. It added that the genesis of the creation of the Fund lay in the successful implementation of Voluntary Disclosure of Income Scheme-97 wherein an additional tax collection of about 10,700 crore was made over and above the normal tax collection. The Ministry further stated (June 2014) that the nature of the Fund was clearly brought out in connection with the budget proposals of 1998-99 presented to and agreed to by the Parliament. It also added that in view of the extremely elaborate scheme of accounting devised by Pr. Chief Controller of Accounts in concurrence with the Controller General of Accounts, there was no reason to doubt that utilisation of Fund would not be reported through standard object heads as was the case with the demands for grants presented to the Parliament.
It also drew a parallel with the similar fund available and operated by the Central Board of Excise and Customs.
The Ministry also contended that since the fund had been created after extensive examination within the Government with regard to purpose and methodology of such expenditure, there was no justification for the Fund to be wound up. The Ministry clarified (September 2014) that no expenditure had been incurred out of the accumulated corpus of Rs. 100 crore and no interest had been credited into this Fund since its inception.
Audit observed that the CBDT had submitted a "Note for the Cabinet" in April 1998 seeking their approval for setting up ITWF. The Secretary (Revenue) in June 1998 had noted that proposal to create ITWF had been approved by the Cabinet as a part of the budget documents. However, the Secretary (Expenditure) in May 2003 turned down the proposal for want of clear approval of the Cabinet. Subsequently, the proposal was approved by the Secretary (Expenditure) in January 2006 on the grounds that the budget proposals undergo debate and discussions in the Parliament, and hence it was to be taken as tacit approval of the Cabinet. However, there are no records in the CBDT indicating that the approval of the Cabinet in relation to the initial note submitted in April 1998 had come through. In the instant case, the procedure for obtaining the Cabinet approval for setting up of the Fund had been compromised and the stated approval cannot be construed as a categorical approval of the Cabinet.
The underlying purposes for the setting up of the Fund was promotion of staff welfare, recreation and other outdoor activities, to provide different forms of medical maintenance for emergencies, construction/hiring/leasing of holiday homes in places of tourist interest and departmental guest houses, advancement of supplementary loans to officers/staff of the department for construction/hiring of residential complexes etc. The propriety of the above expenditure proposed to be met from the Fund in respect of a section of employees remains questionable since the Government already has separate provisions or schemes for the benefit of all the Central Government Employees and their families, which also include the officers/staff of the Income Tax Department. The estimates of expenditure on proposed welfare measures can be financed through normal budgetary process of the Department by obtaining Parliamentary approval to the estimates under appropriate object heads, relevant to the nature of expenditure, as prescribed under Rule 8 of Delegation of Financial Powers Rules 1978 in the concerned Detailed Demands for Grants of the Department, without taking recourse to financing these expenditure from a designated welfare fund. Additional financial assistance for various items either over and above those provided by the Government under the common applicable rules or on altogether new objects is in violation of the standards of financial propriety. Further, the General Financial Rules also do not permit expenditure from public moneys for the benefit of a section of people or individuals. Mere existence of a Fund of an analogous character in another department is not a basis to constitute similar fund in other departments to incentivise and reward performance.
Audit is of the opinion that there is no need to operate any ITWF in the Public Account and expenditure on welfare activities as contemplated by the department can be met through appropriate object heads and such expenditure can directly be debited to the Consolidated Fund of India if the expenditure fits into the schemes and meets the standards of financial propriety as prescribed in various financial rules.
The ITWF opened in the Public Account may be closed and balance may be credited into the Consolidated Fund of India.
In response, the CBDT stated (December 2014) that the Department after taking into consideration the vetting comments of the Audit, had already submitted a final ATN on the previous para to the Monitoring Cell, Department of Expenditure in June 2014. It further added that the para now proposed by Audit reiterated the earlier observation which had already been considered and replied to in the ATN.
Audit concludes, "The reply of the Ministry, however, does not recognize that Audit at any stage did not concur with the action of the Department to continue with the ITWF. In fact, even in response to the ATN, the vetting comments of Audit clearly advocated closure of the ITWF and crediting the balance available in the said fund into the Consolidated Fund of India, which should be complied with."
Either we should close these funds or create a fund for welfare of auditors.