2005 (7) TMI 87 - HC - Income Tax

Computation of rebate under section 89 whether the arrears spread over to the previous assessment years can be considered or not appellant seek to quash communication issued by the CIT, to the extent it relates to the computation of income-tax under section 89 and for a declaration that they are entitled to claim relief under section 89 of the Income-tax Act apportioning the arrears of salary compulsorily credited to the GPF account to various previous years to which it relates and to avail of rebate thereon in the computation of tax payable - stand taken by the Department is that as per the provisions of section 89(1) employees have to furnish the details in Form No. 10E with annexure to the DDOs. When section 89(1) relief is computed, arrears received are spread over to the previous assessment years Petition is dismissed

Summary

Issues Involved:
1. Computation of income-tax under section 89 of the Income-tax Act.
2. Apportioning arrears of salary credited to the General Provident Fund (GPF) account to previous years.
3. Eligibility for rebate under section 88 of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Computation of Income-Tax Under Section 89:
The petitioners, comprising the Kerala Electricity Officers Federation and the Kerala Electricity Workers Federation, along with two individual officers of the Kerala State Electricity Board, sought to quash exhibit P2 communication from the Commissioner of Income-tax, Cochin. They requested a declaration that they are entitled to claim relief under section 89 of the Income-tax Act by apportioning arrears of salary credited to their GPF account to various previous years to minimize their tax burden. The relevant assessment year was 1997-98, and the pay and allowances were revised retroactively from August 1, 1993, with arrears credited to the GPF account in the financial year 1996-97. The petitioners argued that section 89 provides for tax reduction by apportioning arrears to the years they relate to, thus minimizing hardship in tax payment.

2. Apportioning Arrears of Salary Credited to the GPF Account to Previous Years:
The petitioners contended that the arrears credited to the GPF account, which related to earlier financial years (1993-94, 1994-95, 1995-96), should be apportioned to those years for tax relief purposes. They argued that the computation of tax relief under section 89 would be incomplete without apportioning the arrears credited to the GPF account to the respective periods. The Department, however, maintained that the PF payment made out of the arrears was credited only in the previous year 1996-97 and not in the previous years, thus not eligible for rebate when the arrears are spread over to previous assessment years to calculate relief under section 89(1).

3. Eligibility for Rebate Under Section 88:
The petitioners argued that the Finance Accounts Department, Southern Zonal Office, LIC of India, had issued a circular stating that investments qualifying for rebate under section 88 could be apportioned to respective assessment years for employees opting for relief under section 89(1). They contended that when additional salary is apportioned to various previous years, compulsory contributions made to the GPF from the additional salary should also be apportioned for computing tax relief. The Department countered that section 88(2) specifies that the sum referred to in sub-section (1) must be paid or deposited in the previous year by the assessee out of his income chargeable to tax, thus only allowing rebate for sums paid in the previous year relevant to the assessment year.

Legal Provisions and Court's Analysis:
The court examined the relevant provisions under the Income-tax Act, particularly sections 87, 88, and 89, and the corresponding rules under the Income-tax Rules, 1962. Section 89 provides relief when salary is paid in arrears or in advance, and Rule 21A outlines the method for computing such relief. The court noted that the rules do not mandate apportioning the additional salary credited to the GPF account to previous years for tax computation. The relief under section 89(1) is limited to recalculating tax liability for the previous years to which the salary is spread over, without reopening or recomputing the total income of those years. The court emphasized that the relief under section 88 is confined to amounts deposited or paid in the previous year relevant to the assessment year, and there is no provision for fictional apportionment of GPF contributions to previous years.

Conclusion:
The court found no merit in the petitioners' contention that the arrears credited to the GPF account should be apportioned to previous years for tax relief purposes. The rules do not support such apportionment, and the relief under section 89(1) is limited to the extent prescribed by the rules. Consequently, the original petition was dismissed.