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Harbans Singh Versus Commissioner of Income Tax, Patiala

Salary computation - whether any benefit or allowance other than dearness allowance is to be included in the basic salary of the assessee for computation of gratuity and leave encashment under Section 10(10) and 10(10AA)? - Held that:- The authorities below on appreciation of material on record have concurrently recorded that the computation of benefit of gratuity and leave encashment under Sections 10(10) and 10(10AA) of the Act are to be governed by the definition of 'salary' as per Rule 2(h) .....

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purpose of section 15, 16 and 17 of the Act. Explanation 1 to section 36(1)(iia) of the Income-tax Act is to the effect that the expression "salary" in that clause includes the pay, allowances, bonus or commission payable monthly or otherwise. Hence, the contention of the petitioner that the expression "salary" found in section 10(10) and section 10(10AA) of the Income-tax Act should be given a wider meaning than found in clause (h) of rule 2 of Part A of the Fourth Schedule is wholly untenable. .....

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el for the parties, similar questions of law and facts are involved in all the appeals. For brevity, the facts are being extracted from ITA No. 260 of 2013. 2. ITA No. 260 of 2013 has been filed by the assessee under Section 260A of the Income Tax Act, 1961 (in short the Act ) against the order dated 27.12.2012 (Annexure A-3) passed by the Income Tax Appellate Tribunal, Chandigarh Bench B , Chandigarh (hereinafter referred to as the Tribunal ) in ITA No. 758/CHD/2012 for the assessment year 2008 .....

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arh confirming the order of learned CIT (Appeals) that Assessing Officer was justified in calculating the amount of Gratuity exempt under Section 10(10) and Leave Salary exempt under Section 10(10AA) of the Income Tax Act, 1961 by treating Salary for the purpose of calculation of exempted amount of Gratuity and Leave encashment as that Salary means basic plus DA and excludes all other allowances as per clause (h) of Rule 2 of Part A of the Fourth Schedule whereas in clause 2(h) of Part A of the .....

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ate Bank of Patiala under 'Exit Option Scheme' floated by the Bank vide circular dated 30.9.2006 and is having income from retiral benefits and from other sources during the year in question. He has filed his return on 31.7.2008 for the assessment year 2008-09 declaring income at 7,95,394/-. Thereafter, he filed the revised return on 4.6.2009 declaring income at 2,93,850/- by claiming exemption of 5 lacs under Section 10(10C) of the Act. The case of the assessee was taken up for scrutiny .....

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t the 1962 Rules ), 11,002/- on account of excess amount of gratuity and 37,102/- being excess amount of leave encashment both claimed exempt under Section 10 (10AA) of the Act. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [for brevity the CIT (A) ]. The CIT(A) vide order dated 25.5.2012 (Annexure A-2) partly allowed the appeal and deleted the disallowance of exemption under Section 10(10C) of the Act. However, the disallowance of claim 11,002/- .....

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er dated 21.6.2013 (Annexure A-4). Hence, the present appeal. 4. After hearing learned counsel for the parties, we do not find any merit in the appeals. 5. The bone of contention between the parties in these appeals relates to whether any benefit or allowance other than dearness allowance is to be included in the basic salary of the assessee for computation of gratuity and leave encashment under Section 10(10) and 10(10AA) of the Act respectively. 6. Firstly, reference is made to the relevant st .....

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period of earned leave is not to be included in his taxable income to the extent specified therein where the assessee fulfills the conditions stated thereunder. According to Explanation appended to Section 10(10) of the Act, salary in clauses (10) and (10AA) to Section 10 of the Act shall have the meaning assigned to it in clause (h) of Rule 2 of Part A of the Fourth Schedule of the Act which reads thus:- 2(h) Salary includes dearness allowance, if the terms of employment so provide, but exclud .....

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tricted for the purposes of Sections 15 and 16 of the Act and would not govern provisions of Sections 10(10) and 10(10AA) of the Act. Thus, for quantifying the amount exempt under Sections 10(10) and 10(10AA) of the Act, the salary shall be determined as referred in Rule 2(h) of Part A of Fourth Schedule of the Act and no other payment or allowance other than dearness allowance if the terms of employment so permit, shall be taken into consideration. 8. Having enunciated the legal position as not .....

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he claims of the assessee regarding gratuity and leave encashment under Sections 10(10) and 10(10AA) of the Act were partially disallowed by the Assessing Officer and additions of 11,002/- and 37,012/- on that account were made. On appeal, the CIT(A) upheld the order of the Assessing Officer except deleting the disallowance of the assessee under Section 10(10C) of the Act made by the Assessing Officer. The partial additions of 11,002/- and 37,012/- made on account of gratuity and leave encashmen .....

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of gratuity exempted under the Act by following definition of salary as per Fourth Schedule, Part A, Rule 2 (h) as under this schedule proper definition of salary for the purpose of this Act is given as to what it includes and what it does not include. Further, the circular No. 46 also says that salary would include only the periodical payments made to the employee by the employer as compensation for his service and any payments made by the employer to the employee by way of allowances or perqu .....

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efinition of salary as per clause (h) of Rule 2 of Part A of Fourth Schedule. 9. On further appeal, the Tribunal has noticed that the Assessing Officer has included basic pay plus dearness allowance and applied the formula as applicable to the gratuity and leave encashment for working out the eligible amount of gratuity and leave encashment. Further, it was held by the Tribunal that the computation of benefit of gratuity and leave encashment under Section 10(10) and 10(10AA) of the Act are to be .....

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anation, the computation of benefit of gratuity and leave encashment, as contemplated u/s 10(10) and 10(10AA) are to be governed by the definition of 'salary' contained in the above Explanation and not by any agreement, as contended by the ld. AR, viz. 8th Bipartite Settlement on wage revision and other similar conditions between Indian Banks' Association and their Workmen. The definition of 'salary' as reproduced above is squarely and specifically applicable to section 10(10 .....

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roach of the authorities below was erroneous or perverse or that the findings of fact recorded were based on misreading or misappreciation of evidence on record so as to warrant interference by this Court. 11. Further, the Madras High Court in K. Gopalakrishnan v. Central Board of Direct Taxes and others (1994) 206 ITR 183 (Mad) while interpreting the term 'salary' under Sections 10(10) and 10(10AA) of the Act has held that there is no general definition of the word salary applicable for .....

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