Sec. 89 Income Tax relief allowed for arrears of perquisites : ITAT

ORDER

1. This is assessee’s appeal for A.Y. 2014-15 against the CIT (A)’s action of confirming disallowance of Rs. 5,27,403/- claimed by the assessee u/s. 89 of the IT Act.

2. The facts are that during the year, arrears of Rs. 23,56,430/-, being arrears in lieu of employer’s contribution to the newly implemented ‘Defined Contribution Scheme’, were received by the assessee from his employer GAIL (India) Ltd. As per the assessee, he had claimed relief of Rs. 5,27,403/- under section 89 of the Act in accordance with the amount mentioned as relief under that section in Form No.16 issued by his employer. He has also relied upon the argument that employer’s contribution to an approved superannuation fund in respect of an employee, had become taxable as a ‘perquisite’ by the insertion of the provision under section 17(2)(vii) w.e.f. 01.04,2010, and since the larger part of the arrears received by him pertained to the years prior to 01.04.2010, the relief under section 89 of the Act should be allowed to him. In his submission he has also mentioned that the A.O. was confused and had passed the impugned order in a hurried manner without properly considering his submissions. The assessee claimed this as exemption u/s. 89 of the Act.

3. The AO held that section 89 of the I.T. Act, 1961 is applicable where an assessee is in receipt of a sum in the nature of salary, being paid in arrears, or in advance, or is in receipt, in any one financial year, of salary for more than 12 months or a payment which, under the provisions of clause-(3) of section-17, is profit in lieu of salary, or is in receipt of a sum in the nature of family pension as defined in the explanation to clause (iia) of section 57, being paid in arrears; that on the contrary, the payments made by the employer are value of perquisites, u/s. 17(2) as per Form no. 12BA, this amount of Rs. 28,70,929.44/- cannot qualify for relief u/s. 89(1) therefore, relief claimed u/s. 89(1) amounting to Rs. 5,27,403/- is disallowed and added to the tax shown in the return of income.

4. The ld. CIT (A) has held (relevant paras) as under:

‘6.3 My findings on the impugned issue are as under :—

(A) A perusal of section 89 and the related rules makes it amply clear that the relief under section 89 is not available, and has never been available, to an employee in respect of any arrear received by him from his employer in reference to a ‘perquisite’.

(B) The arrears in the present case pertain to a perquisite and not to salary or profit in lieu of salary or a family pension as defined in the Explanation to clause (iia) of section 57 of the Act. This fact is proven from a perusal of appellant’s Form No. 12BA dated 22.05.2014 digitally signed by the Dy. Manager (F&A), GAIL (India) Ltd., a copy of which is reproduced later in this order.

(C) Further, it can be observed that the sub-clause (vi) of section 17(2) pertaining to the fringe-benefits or amenities, was substituted by sub-clauses (vii),(viii) and (viii) w.e.f. 01.04.2010 and thereby the employer’s contribution to an approved superannuation fund in respect of any assessee to the extent it exceeded Rs. 1,00,000/-, was specifically brought under the ambit of ‘perquisites’. This amendment does not in any way indicates’ that the employer’s contribution to an approved superannuation fund in respect of any assessee, would be, or was being treated as part of salary or profit-in-lieu of salary or family pension. Even if it was exempt from taxation till 01.04.2010, it does not imply that relief in its respect under section 89 is permissible to an employee.

(D) The appellant’s reliance on Form no. 16 issued by his employer is also baseless. This is so because the provisions of IT Rule 21AA, in no uncertain terms, put the responsibility of providing the particulars specified in Form No. 10E on the employee and not on the employer. Also, the Form no. 10E is to be verified by the employee and not the employer. Further, a mere perusal of I.T. Rule 21A and Form No. 10E reveals that no place has been given in them for the inclusion of arrears in respect of employer’s contribution to any superannuation fund. In-fact, because the CBDT has not allowed any relief under those provisions, the residuary provisions of IT Rule 21A(1)(e) read with sub-rule (6) of the same rule, too, do not come to the help of the appellant.

(E) Relevant documents were requisitioned from the appellant during the present proceedings…………………….. On a perusal of the above three documents, it becomes evident that:-

(F) As a confirmatory proof as regards the nature of the said arrears received by the appellant, I have been able to lay my hands on the Circular no. CO/HR/Pol/W-19 dated 04.04.2014 issued by the Corporate HR Department of GAIL (India) Ltd. It is available on the web and in reference and in conformity to the details submitted by the appellant during the present proceedings. It lays down the terms and conditions relating to the ‘Defined Contribution Scheme’ under which the said arrears were received by the appellant during the impugned year. At clause 3.1.4 of this circular it has been clearly mentioned that “contribution over and above exemption limit prescribed under Income Tax Act would be taxable in the hands of employees as perquisite. TDS, wherever applicable, will be deducted from monthly salary of employees.”……………………

7. The appellant has alleged in his submissions before me that the A.O. was confused and acted in a hurried manner while deciding the issue under consideration. He has also referred to some judicial precedents in his second submission dated 19.12.2017. Further, it has been argued by him that since salary includes perquisites, and perquisites include employer’s contribution to superannuation fund, the relief under/section 89 should be allowed to him.

With due respect to the judicial authorities and in consideration of the facts of this case listed above, it is humbly stated that all these submissions are either irrelevant or distinguishable.

8. Therefore, in light of the above, it can be conclusively said that the appellant has claimed undue relief of Rs. 5,27,403/- under the provisions of section 89 of the Act. This relief has been claimed by the appellant by providing incorrect particulars in Form No. 10E to his employer and thereafter making the said claim in his return of income. The A.O.’s action of disallowing the claim of deduction of Rs. 5,27,403/- under section 89 of the Act is accordingly confirmed. Ground No. 1 is dismissed.’

5. The ld. Counsel for the assessee has contended that (statement of facts paras 3 to 12 reproduced):

‘3. That, the return was filed with Assistant Commissioner of Income Tax, Circle 1(1)(1), Agra. This case was selected for Scrutiny under CASS and the notices were issued u/s. 143(2) of Income-tax Act by the same Assessing Officer.

4. That, all the documents required for the assessment were submitted to the learned ACIT, Circle 1(1)(1), Agra but the learned ACIT disallowed the relief u/s. 89 of Income Tax Act in the assessment order showing that the entire arrears of superannuation funds belong to perquisite u/s. 17(2) of Income Tax Act as per Form 12BA. Therefore, these arrears cannot be qualifying for the relief u/s. 89 of Income tax Act. Therefore, the relief claimed u/s. 89 amounting to Rs. 5,27,403/- is disallowed and added to the tax shown in the return of income.

5. That, the Appeal against the Assessment Order passed u/s. 143(3) of Income Tax Act was filed before the ld. CIT (A). The Appeal was also disallowed by the CIT (A) observing that the arrears in the present case pertains to a perquisite and not to salary or profit in lieu of salary or a family pension as defined in the explanation clause (iia) of Section 57 of the Act.

6. That, the AO and the ld. CIT (A) has misinterpreted inadvertently the definition of salary as shown in Section 17 of the Income Tax Act, 1961. Section 17 of Income Tax Act held as follows:—

“Salary”, “Perquisite” and “Profits in lieu of Salary” defined

17- For the purpose of Section 15 and 16 and of this section,—

(1) “Salary” includes:

(i) Wages

(ii) Any annuity or pension

(iii) Any gratuity

(iv) Any fess, commission

(viii) “The amount of any contribution to an approved superannuation fund by the employer in respect of the Assessee, to the extent it exceeds one lakh rupees.”

7. That, Section 89 of Income Tax Act speaks about relief which is as follows:-

Relief when salary, etc., is paid in arrears or in advance.

89. Where an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance or is in receipt, in any one financial year, of salary for more than twelve months or a payment which, under the provisions of clause (3) of section 17 is a profit in lieu of salary, or is in receipt of a sum in the nature of family pension as defined in the Explanation of clause (iia) of Section 57, being paid in arrears, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed, the AO shall, on an application made to him in this behalf, grant such relief as may be prescribed.

8. Further, as per the pay revision guidelines, which were effective from 01.01.2007 and issued by the Department of Public Enterprises (DPE) in its official Memorandum dated 26.11.2008 and 02.04.2009, the Central Public Sector Enterprises have been allowed to contribute within over all limit of 30 % of basic pay plus dearness allowance of the Employee as superannuation benefit which would include contributory provident fund, gratuity, pension and post retirement benefit scheme. The contribution was made by the employer to superannuation fund scheme, known as defined contribution scheme in F.Y. 2013-14 for the period from 01.01.2007 to 31.03.2013. In accordance with DPE guidelines, the employer contributed to defined contribution scheme in F.Y. 2013-14 pertaining to earlier Assessment Year with effect from 01.01.2007 to 31.03.2013 and deposited in the superannuation fund accounts of the appellant, (not paid in cash to any employee).

9. That, the above said contribution to defined contribution scheme by the employer was included in the income under the head salary under the provision of section 17(2)(vii) w.e.f. 01.04.2010. Prior to this period, the superannuation fund was totally exempt from tax. Section 17(2) (vii) held as follows :-

“The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees.”

10. However, as per the provision of Section 89 of the Income Tax Act, the relief under section 89 had been claimed in the return and also considered the salary in arrears (i.e. contribution to superannuation fund) pertaining to the earlier assessment years (i.e.2007-08, 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 respectively).

11. Further, section 17(2) (vii) of the Income Tax Act, 1961 was inserted w.e.f. 01.04.2010 from the A.Y. 2010-11 and therefore, the contribution to an approved superannuation fund by the employer to assessee exceeding one lakh became taxable w.e.f. 01.04.2010. However, the contribution of above said nature fund was not taxable before the A.Y. 2010-11. Therefore, the relief under section 89 of the Act is largely on account of the reason that the contribution to the superannuation fund belongs to A.Ys. 2007-08, 2008-09 and 2009-10 were exempt from payment of income tax in the respective Assessment Years.

12. That, the relief u/s. 89 of Rs. 5,27,403/- was mainly accrued on the amount of contribution made towards superannuation fund for the Assessment Years 2007-08, 2008-09 and 2009-10 amounting to Rs. 14,41,492/-, Rs. 1,24,257/- and Rs. 1,41,074/-respectively. In these years, the superannuation fund was free from tax.’

6. The ld. DR has placed reliance on the impugned order.

7. Heard. The ld. CIT (A) has held that:

8. The ld. CIT (A) has correctly held that section 89 does not talk of perquisite, but of, inter alia, salary, whereas the relief claimed by the assessee pertains to ‘perquisite’ and not ‘salary’; that ‘perquisite’ within the meaning of section 17(2)(vii) means contribution in excess of one lac rupees to an approved superannuation fund by the employer in respect of an assessee.

9. However, the following position appears to have escaped the knowledge of the ld. CIT (A). Section 17(1) defines ‘salary’ and ‘perquisite’ separately for the purposes of sections 15 and 16. Section 15 is the charging section qua income from salary, whereas section 16 deals with deduction there-from. Section 17(1)(iv) says that ‘salary’ includes, inter alia, perquisites. Relief u/s. 89 is available in respect of salary and so, it is, by virtue of section 17(1) (iv), as a natural corollary thereof, available qua perquisites. Rule 21A of the Rules pertains to, inter alia, salary with respect to which section 89 grants relief. Therefore, the said Rule does pertain to perquisite as well. Rule 21A(1)(a) states that where, inter alia, any portion of the assessee’s salary is received in arrears or in advance, the relief u/s. 89 shall be in accordance with the provisions of Rule 21A(2). Hence, it relates to the contribution under consideration also. Section 192(2)(A) provides inter alia, that where an assessee, being a government employee in a company, is entitled to relief u/s. 89(1), he must furnish particulars for the purposes of TDS, as prescribed. Rule 21AA provides the prescription, in the shape of form 10E. Under Form 10E, the particulars required to be furnished are those of income referred to in Rule 21A. Rule 21A, as noted, talks of, inter alia, income by way of salary. ‘Salary’, as per section 17(1)(iv), includes perquisites. The contribution in question is, admittedly, a perquisite. So, the circle is complete. Form 10E, ergo, does relate to the contribution under consideration. Then, Rule 21A(1)(e) read with Rule 21A(6) may not help the assessee, but Rule 21A(1)(a) read with Rule 21A(2) does. Rule 21A(1)(e) read with Rule 21A(6) concerns cases where, inter alia, the payment is not in the nature of salary paid in arrears or in advance, whereas Rule 21A(1)(a) read with Rule 21A(2) pertains to cases, inter alia, where salary is received in arrears or in advance. The assessee’s case falls under the latter category. So, Rule 21A(1)(e) read with Rule 21A(6) being not helpful to the assessee, is, in no manner, detrimental to the assessee’s claim. Further, it is true, that as per the Circular (supra) dated 4.4.2014 of GAIL, contributions over and above the exemption limit prescribed under the IT Act would be taxable in the hands of employees, as perquisite. Section 17(2)(vii) of the Act also treats such a sum as a perquisite. But, to hark back, as per section 17(1)(iv), perquisite is salary and receipt of salary paid in arrears or in advance is entitled to relief under section 89. It is trite that delegated legislation cannot override the provisions of the Act. Moreover, the circular involved herein, is not a circular issued by the CBDT, but an internal circular of GAIL, which is of no consequence over the provisions of the IT Act.

10. Thus:

11. In view of the above, the grievance of the assessee is justified and it is accepted as such. The order under appeal is, thus, reversed. The claim of the assessee u/s. 89 of the Act is directed to be allowed forthwith. Ordered accordingly.

12. In the result, the appeal is allowed.

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