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TMI Blog2005 (7) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... ay and allowances of the officers and workers under the Kerala State Electricity Board, the third respondent herein, were revised with effect from August 1, 1993, on a long-term bilateral agreement entered into in 1995. It is stated that as per the said agreement, all the categories of the officers and workers were entitled for cash payment of the revised pay and allowances from February 1, 1995. The revised benefits for the period from August 1, 1993 to January 31, 1995, were to be drawn by them as arrears and the entire amount was to be compulsorily credited to their general provident fund. It is admitted that the entire arrears form part of the total income for the financial year 1996-97, relevant to the assessment year 1997-98. As a result, there will be an abnormal increase in the total income of the employees for the relevant assessment year. According to the petitioners, section 89 of the Income-tax Act provides for reduction of tax payable by them by apportioning the arrears to the years to which it relates so as to minimise their hardship in payment of tax. The arrears ranging from Rs. 5,000 to 50,000 drawn by the employees depending on the posts held by them and the lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the additional salary shall also be apportioned to various previous years. According to them, in such computations, the apportionment of additional salary to various previous years to work out the relief admissible to the assessee is only imaginary and when such an imaginary apportionment is made, computation of tax thereon is incomplete without apportioning the arrears of salary credited to the GPF account and granting rebate under section 88. It is submitted that exhibit P2 clarification, if accepted, will cause irreparable monetary loss to the employees of the Board, which is opposed to the intention of the Legislature which enacted the provisions of section 89 of the Income-tax Act. A counter-affidavit is filed for and on behalf of the 4th respondent. The 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. According to the Department, in computing the rebate under section 88 whether the arrears spread over to the previous assessment years can be considered or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 88, "the sums referred to in sub-section (1) shall be any sums paid or deposited in the previous year by the assessee ..." Thus, such sums which are referred to in sub-section (1) are the sums paid or deposited in the previous year by the assessee. Admittedly, the amount received by way of arrears of salary are deposited only in the previous year relevant to the assessment year 1996-97 and not in the previous years relevant to the assessment years earlier thereto, though the arrears of salary may relate back to an earlier period to the previous year relevant to the assessment year 1996-97. Before insertion of section 88, deduction in respect of life insurance premia, contribution to provident fund, etc., were governed by the provisions contained in section 80C which section was omitted by the Finance Act, 1990, with effect from April 1, 1991, with the insertion of section 88. What was allowed by way of deduction from the total income under section 80C is now substituted by way of a rebate to be granted under section 88. Sub-section (2) of section 80C also contains a similar provision. In the case of an assessee who is an individual, any sums paid in the previous year by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of clause (3) of section 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 relief to be granted under sub-section (1) of section 89 shall be- ... (2)(a) In a case referred to in clause (a) of sub-rule (1), the tax payable by the assessee on his total income of the previous year in which the salary is received in arrears or in advance or, in which the family pension is received in arrears (such salary or family pension being hereafter in this sub-rule referred to respectively as the additional salary or additional family pension, as the case may be, and such previous year being hereafter in this sub-rule referred to as the relevant previous year) shall be reduced by the amount, if any, by which the tax on the additional salary or additional family pension, calculated in the manner specified in clause (b), exceeds the tax or the aggregate tax on the additional salary or additional family pension, calculated in the manner specified in clause (c) or clause (d), as the case may be. (b) Tax shall be calculated on the total income of the relevant previous year as reduced by the additional s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: Table A --------------------------------------------------- Previous Total Salary Total income year(s) income received in (as increased of the arrears or by salary relevant advance received in previous relating to arrears or year the relevant advance) of the (Rs.) previous relevant pre- year as vious year mentioned mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income (as per item 1). 6. Tax on salary received in arrears or advance (difference of item 4 and item 5). 7. Tax computed in accordance with Table "A" [brought from column 7 of Table "A"]. 8. Relief under section 89(1) [Indicate the difference between the amounts mentioned against items 6 and 7]. The manner of computation of tax as per item 7 of the annexure is to be made in accordance with Table A. Table A is as given above. On a combined reading of rule 21A, when the salary is received in arrears, the relief to be granted under sub-section (1) of section 89 shall be in accordance with the provisions of sub-rule (2) of rule 21A. Sub-rule (2)(a) provides the manner of computation. As per the said rule, the tax payable by the assessee on his total income of the previous year in which the salary is received in arrears or advance (which is referred to as additional salary received and the previous year is referred to as the relevant previous year) has to be reduced by the amount, if any, by which the tax on additional salary calculated in the manner specified in clause (b) exceeds tax or aggregate tax on the additional salary calculated in the manner specified in clause (c) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arding as to whether the additional salary if credited to the general provident fund account should also be apportioned in the same manner and the tax recomputed in respect of each such previous assessment year. What is provided for is only the recalculation of the liability of the previous years to which the salary is spread over for the limited purpose of calculating the relief to which the assessee is entitled as prescribed under the rules. In other words, the rule does not warrant a reassessment or recomputation of the income of the previous years. It does not permit of a reopening of an assessment already made but to calculate the rebate allowable under section 89(1) as prescribed under the rule by fiction of law. The additional salary pertaining to the relevant previous year as though it is received in that year is added for the limited purpose of calculating the amount of tax. In other words, the relief under section 89(1), is only a partial relief to the extent provided for in the rules prescribed. Section 89(1) being a provision giving certain reliefs as prescribed, such relief has necessarily to be computed under the rules. If the argument of learned counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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