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TMI Blog1995 (10) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 22,730 and claiming the spread over of this amount under section 89(1) of the Act. The assessment was originally completed under section 143(1)(a) disallowing the claim. The assessee then applied under section 143(2)(a) objecting to the assessment of the sum of Rs. 22,730. But the Income-tax Officer repeated the assessment in the view that section 89(1) had no application to encashment of leave salary. The assessee appealed to the Appellate Assistant Commissioner contending that encashing the leave is purely a voluntary act and so he should not be taxed. But the Appellate Assistant Commissioner was of the view that leave was accumulated in the course of service for which salary was paid and any benefit derived was salary. He, therefore, confirmed the assessment of the amount received by encashment of leave as part of salary. Aggrieved, the assessee filed a second appeal before the Appellate Tribunal and contended that the Appellate Assistant Commissioner erred in confirming the order of the Income-tax Officer. The assessee also contended that section 89(1) of the Act was applicable. The Appellate Tribunal understood the first ground of appeal to be one against the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 10(10AA) and 17(3)(ii) of the Act in order to show that the intention of the Legislature was to tax the encashment of leave salary from April 1, 1978, onwards. On the other hand, learned counsel appearing for the assessee, while supporting the order passed by the Tribunal, submitted that the decisions relied upon by the learned standing counsel are concerned with persons, who are in employment and those decisions are having no bearing with regard to the retired employee. According to learned counsel, the assessee in the present case is a retired employee from the Fertilizer Corporation of India, Durgapur. Learned counsel for the assessee submitted that in view of the provisions contained in section 17(1)(va), any amount received by an employee in respect of any period of leave not availed of by him, is taxable from April 1, 1978, onwards, and therefore, prior to that period, encashment of leave salary is not taxable. Learned counsel further submitted that there is a doubt with regard to the applicability of section 17(1)(va) and section 17(3)(ii) of the Act and the benefit of doubt should go in favour of the assessee. Learned counsel for the assessee further relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tum of his work and the compensation which he receives for the same on his retirement has also nothing to do with the work. 5. The fact also would go to show that it has nothing to do with the employee's service or his rate of salary while in service. 6. The accumulated leave is an asset which the former employee can keep for himself and not even encash. 7. The nexus between this receipt and the employment where the employee has a right merely to take leave or not is too much to regard a receipt after retirement as proceeding from his employment so as to be classed as salary. 8. It has an existence only when he receives it on his claiming it in exchange for the "sacrifice" he made while in service and not for rendering service. 9. Thus the anticipation of encashment is only a possibility and not a certainty. Secondly, there is one time receipt only ; hence, non-recurring. 10. Proviso to section 10(3) also would not apply, since it is not a receipt from capital gains. For all these reasons, the Tribunal held that the encashment of leave salary is not an income, and, therefore, not taxable under the Act. In so far as the claim under section 89(1) of the Act is concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a provident fund or other fund, subject to the qualifications made thereunder, would constitute 'profit in lieu of salary'. Secondly, the pronoun 'it' must necessarily be referable to the preceding nouns 'provident fund or other fund', and not to 'any payment' inasmuch as it is only a fund that may consist of contributions and not any payments. The essential ingredients that are to be satisfied for the purpose of application of the provisions enacted in section 17(3)(ii) are : (1) that the payment must be relatable to employment ; (2) that it must not be based on personal or extra-employment considerations ; and (3) that it must not be a payment falling under any clause of section 10 specified in the parenthetical clause of section 17(3)(ii). Leave encashment satisfies all these ingredients, being in the nature of recompense or reward for the services rendered by the employee. The legislative history of the provisions also makes this clear. The amount is not exempt under the provisions of section 10. Under clause (10AA) of section 10, which was introduced by the Finance Act, 1982, with retrospective effect from April 1, 1978, the receipt by way of leave encashment paid to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly the encashment of leave an assessee receives at the time of retirement. The intention of Parliament is not to exempt encashment of leave by all employees. In the case of employees who continue in employment, the payment of leave salary and allowances to an employee who surrenders his leave is related to or flows from the relationship of the employer and the employee and from the terms and conditions of employment and falls within the meaning of 'profits in lieu of salary' in clause (ii) of sub-section (3) of section 17 of the Act and is assessable as such. When the meaning of words is clear and unambiguous, the court has to give effect to it whatever be the consequences, as the court has no jurisdiction to mitigate harsh consequences of the statute, if any. " A similar view was taken by the Allahabad High Court in the decision in All India Defence Accounts Association, In re : Shailendra Kumar v. Union of India [1989] 175 ITR 494, while considering whether encashment of leave salary is taxable under section 17(3) of the Act, prior to the amendment. Learned counsel appearing for the assessee submitted that in view of the provisions contained in section 17(1)(va), the encashm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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