2016 (5) TMI 1144 - AT - Income Tax

Reopening of assessment - salary income - addition on repayment of sign on bonus back - whether the provision of Act permit deduction were the assessee voluntarily resigned from Barclays Bank and joined Deutsche Bank violating the pre-conditions of employment to stay with Barclays Bank for a period of one year? - Held that - The assessee has received the amount during his employment and there exists employer and employee relationship and sign-inbonus cannot treated as capital receipt. We found on the basis of submissions that the assessee has voluntarily resigned from Barclays Bank and was not a forced termination of employment. As per service certificate of bank and the assessee has left the bank on his own accord. The submissions of the Revenue being the amount repaid by the assessee to the Barclays Bank was reimbursed by new employer Deutsche Bank. The assessee joined Deutsche Bank due to attractive pay package and separate amount was provided for refund of sign-on-bonus. On the perusal of provisions of Sec. 17(1) of the Act, there are no explanation were assessee should reduce refund of sign-on-bonus. Considering the apparent facts, terms of employment, characteristic of sign on bonus and the service certificate of Barclays Bank were assessee has voluntarily left the service. We are of the opinion that ld. Commissioner of Income Tax (Appeals) has examined the issue in detail based on the observations of the Assessing Officer and the provisions of law. Therefore, we are not inclined to interfere with the order of Commissioner of Income Tax (Appeals) and uphold the same. - Decided against assessee.

Summary

Issues involved:
1. Addition of sign-on bonus to income in reassessment.

Analysis:
The judgment revolves around the issue of whether the sign-on bonus received by the assessee should be added to their income in the reassessment. The assessee joined Barclays Bank, received a sign-on bonus, and later resigned to join Deutsche Bank, refunding the sign-on bonus as per the employment terms. The Assessing Officer added the refunded amount to the income for the current assessment year. The Commissioner of Income Tax (Appeals) upheld this addition, stating that the sign-on bonus, once forfeited due to breach of contract, should be taxed. The Tribunal considered the arguments presented by both parties. The authorized representative of the assessee contended that the sign-on bonus should be deducted from the gross salary as it was repaid and offered for taxation in the previous assessment year. The Departmental Representative supported the lower authorities' decisions, emphasizing that the sign-on bonus is a revenue receipt and not a capital receipt. The Tribunal analyzed the provisions of the Income Tax Act and the circumstances of the case. It noted that the assessee voluntarily resigned from Barclays Bank and joined Deutsche Bank for better prospects. The Tribunal agreed with the Commissioner of Income Tax (Appeals) that the addition of the sign-on bonus to income was justified based on the employment terms and the nature of the receipt. Therefore, the Tribunal dismissed the appeal, upholding the decision of the Commissioner of Income Tax (Appeals).

This judgment clarifies the treatment of sign-on bonuses in income tax assessments, emphasizing the distinction between revenue and capital receipts. It highlights the importance of employment terms and voluntary actions of the assessee in determining the taxability of such receipts.