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2000 DIGILAW 945 (DEL)

COMMISSIONER OF INCOME TAX v. S. N. CHADHA

2000-11-03

ARIJIT PASAYAT, D.K.JAIN

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Arijit Pasayat ( 1 ) AT the instance of Revenue, following questions have been referred for opinion of this Court under Section 256 (1) of the Income-tax 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 Section 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 assessment year 1972-73 corresponding to financial year 1971-72, assessee, an individual claimed relief under Section 89 (1) of the Act in respect of Rs. 10,709. 00 received on account of encashment of accumulated leave. Income-tax Officer 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. Section 89 (1) had no application. Assessee, challenged the matter in appeal before the Appellate Assistant Commissioner (in short, the AAC ). Said Authority was of the view that assessed was entitled to relief under Section 89 (1) as according to him, payment in question could be brought within the scope of Section 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 A. A. C. s conclusion on the ground that Section 17 (1) (vi) had no application. Tribunal analysed the provisions of Section 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 Section 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". 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 Section 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 Section 17 (3) (ii), "profits in lieu of salary" included any payment, other than those specifically mentioned therein, received by an asses see from an employer or 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 Section 17 (3) (ii) and consequently forms part of the salary of the assessee. It was further held that provisions of Section 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 Section 89 (1) of the Act. ( 4 ) WE find that a new provision i. e. , 17 (1) (va) was introduced from 1. 4. 197 After the inclusion, the provision reads as: "17. For the purposes of Sections 15 and 16 and of this section, (1) "salary" includes XX XX XX XX (va) any payment received by an employee in respect of any period of leave not availed of by him". It has to be noted that the Clause (va) of Section 17 (1) was inserted by the Taxation Laws (Amendment) Act, 1984 with retrospective effect from 1. 4. 1978. It has to be noted that the Clause (va) of Section 17 (1) was inserted by the Taxation Laws (Amendment) Act, 1984 with retrospective effect from 1. 4. 1978. Section 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 Clause (10) [, Clause (10a)] [, Clause (10b)], Clause (11), [clause (12)], [clause (13)] or [clause (13a)] of Section 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 Section 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". ( 5 ) SECTION 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 Clause (3) of Section 1-7 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 [assessing] Officer shall, on an application made to him in this behalf, grant such relief as may be prescribed)," ( 6 ) EVEN a bare reading of the provision makes it clear that it has application to any payment which is made under the provisions of Clause (3) of Section 17 as a "profit in lieu of salary". That being the position. Tribunal was correct in its view that Section 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. Questions answered in affirmative.