Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is legally correct in holding that s. 89(1) was applicable to the assessee’s case ?

Sections 17(1)(va), 17(3)(ii), 89(1)

Asst. year 1972-73

Arijit Pasayat, C.J. & D.K. Jain, J.

Counsel Appeared

Sanjeev Khanna & Ajay Jha, for the Petitioner : None, for the Respondent

ORDER

ARIJIT PASAYAT, C.J. :

At the instance of Revenue, following questions have been referred for opinion of this Court under s. 256(1) of the IT Act, 1961 (in short the ‘Act’) by the Income-tax Appellate Tribunal, Delhi Bench ‘A’ New Delhi (in short, the ‘Tribunal’) :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is legally correct in holding that s. 89(1) was applicable to the assessee’s case ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is legally correct in holding that the amount of leave encashment together with regular salary of the assessee represented salary for more than 12 months ?”

2. Factual position, which is almost undisputable is essentially as follows : For the asst. yr. 1972-73 corresponding to financial year 1971-72, assessee an individual claimed relief under s. 89(1) of the Act in respect of Rs. 10,709 received on account of encashment of accumulated leave. ITO rejected the claim on the ground that such relief was admissible only in response to assessee’s salary being paid in arrears or in advance or by reasons of salary for more than 12 months having been received in any one financial year. He held that the amount received by assessee on encashment of accumulated leave did not represent either arrears or advance of salary and, therefore, s. 89(1) had no application. Assessee challenged the matter in appeal before the AAC. Said authority was of the view that assessee was entitled to relief under s. 89(1) as according to him, payment in question could be brought within the scope of s. 17(1)(vi) of the Act and, therefore, was included within the term “salary”. Revenue carried the matter in appeal before the Tribunal. It assailed AAC’s conclusion on the ground that s. 17(1)(vi) had no application. Tribunal analysed the provisions of s. 17 of the Act and observed that AAC was not correct in holding that the payment received on encashment of accumulated leave is covered by s. 17(1)(vi) of the Act It was noted that the said provision only deals with “annual accretion to the balance at the credit of an employee participating in a recognised provident funds”. Tribunal however observed that according to s. 17(1)(iv) of the Act, the expression “salary” included “profits in lieu of or in addition to any salary or wages” and that according to s. 17(3)(ii). “profits in lieu of salary” included any payment, other than those specifically mentioned therein, received by an assessee from an employer or a former employer, to the extent to which it did not consist of contributions made by the assessee or interest on such contributions”. It was, therefore, held that the amount in question falls under the category of “profit in lieu of salary” under s. 17(3)(ii) and consequently forms part of the salary of the assessee. It was further held that provisions of s. 89(1) of the Act applied to the facts of the case. On being moved by the Revenue questions as set out above have been referred for opinion of this Court.

3. We have heard the learned counsel for Revenue. There is no appearance on behalf of assessee in spite of notice being served on him. Learned counsel for the Revenue, submitted that when Tribunal accepted about non- maintainability of AAC’s conclusion, a new case should not have been made out to uphold AAC’s ultimate conclusions about applicability of s. 89(1) of the Act.

4. We find that a new provision i.e., s. 17(1)(va) was introduced from 1st April, 1978. After the inclusion, the provision reads as : “17. For the purposes of ss. 15 and 16 and of this section— (1) “Salary” includes : x x x x x (va) any payment received by an employee in respect of any period of leave not available of by him.” It has to be noted that the cl. (va) of s. 17(1) was inserted by the Taxation Laws (Amendment) Act, 1984, with retrospective effect from 1st April, 1978. Sec. 17(3) of the Act at the relevant time reads as follows : “”Profits in lieu of salary” includes— (i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto; (ii) any payment [other than any payment referred to in cl. (10) cl. (10A)] [cl. 10(B)], cl. 11, cl. (12), cl. (13) or cl. (13A) of s. 10], due to or received by an assessee from an employer or a former employer or from a provident or other fund not being an approved superannuation fund, to the extent to which it does not consist of contributions by the assessee or interest on such contributions.” Obviously therefore, in terms of s. 17(3)(ii) any payment other than those specified in the provision itself are included in the expression “salary”, on being treated as “profit in lieu of salary”. Sec. 89(1) of the Act is in the following terms : “Where by reason of any portion of an assessee’s salary being paid in arrears or in advance or by reason of his having received in any one financial year salary for more than twelve months or a payment which under the provisions of cl. (3) of s. 17 is a profit in lieu of salary, his income is assessed at a rate higher than that at which it would otherwise have been assessed, the AO shall, on an application made to him in this behalf, grant such relief as may be prescribed.”

Even a bare reading of the provision makes it clear that it has application to any payment which is made under the provisions of cl. (3) of s. 17 as a “profit in lieu of salary”. That being the position, Tribunal was correct in its view that s. 89(1) was applicable to assessee’s case. Our answer for both the questions is in the affirmative in favour of the assessee and against the Revenue.

[Citation : 249 ITR 31]