Chandra kumar shukla vs cit
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The assessee appealed the Commissioner's order regarding tax exemption on leave encashment received from two previous employers. The assessing officer denied full exemption and restricted it based on a 300 day limit. However, the appellate tribunal allowed the assessee's appeal, citing previous cases that established leave encashment from multiple employers as separately eligible for exemption under Section 10(10AA).
Chandra kumar shukla vs cit
- 1. Chandra Kumar Shukla vs CIT Fiscal Policy and Tax Management
- 2. Introduction • This is an appeal by the assessee against the order dated 26-7-2006 of Commissioner (Appeals), Ghaziabad relating to the assessment year 2004-05 • Judge - N.V. Vasudevan, Judicial Member • Court - Income Tax Appellate Tribunal – Delhi • Dated - 4 May, 2007
- 3. What is Leave Encashment ? • It means that employee will receive the cash for leaves which are not taken by the employees. • Many organizations provide the facility of encashment of leave either; 1) during the period of employment (or) 2) at the time of retirement (including separation on account of resignation, retrenchment, VRS etc other than termination) of the employee (or) 3) at the time of Termination of the employee.
- 4. Who gets leave encashment ? • For tax treatment of leave encashment under section 10(10AA) of Income Tax Act 1961, the employees have been classified into two types: 1) Govt Employees and 2) Non-Govt employees (PSU or Private employees)
- 5. For Govt Employees • During the period of employment / service, if an employee encashes any leaves, the entire LC amount is fully taxable. • At the time of retirement or separation or resignation, LC is fully exempted from Income Tax. • At the time of termination of employee, it is fully taxable.
- 6. For Non - govt Employees • Any leave encashed during the period of employment / service is fully taxable. • LC is either fully or partially exempted at the time of retirement or resignation. Tax Exemption on LC availed during retirement or resignation is least of the following: • Rs 3,00,000. • Actual Leave encashment amount that has been received by an employee. • 10 months’ Salary. • Cash (salary) equivalent of leaves that is available at the time of retirement. Leave calculation is done subject to maximum of 30 leave per completed year of service.(Do note that, least of these is exempted from income tax, the remaining LC balance (if any) is taxable) • At the time of termination, it is fully taxable.
- 7. What is Section 10 (10AA) • Leave Encashment Exemption Section 10(10AA) • All Most all the private sector employees receives leave encashment component as part of their full and final settlement. But As per section 10(10AA) leave encashment is exempt from income tax to the extent allowed. • As per section 10(10AA), leave encashment by a Government employee at the time of retirement (whether on superannuation or otherwise) is wholly exempt from tax.
- 8. Brief Facts • The assessee is an individual. He filed his return of income for the assessment year 2004-05 declaring a total income of Rs. 5,62,280. The assessee has claimed exemption of a sum of Rs. 2,15,449 under Section 10(10AA)(ii) of the Act. • Assessee had taken up premature retirement in the army • He had received a sum of Rs. 81,378 being the leave encashment of 215 days • The assessee worked with M/s. Microwave Communications Ltd. and resigned from this company in January, 2004.
- 9. Brief Facts • The assessing officer was of the view that under the provisions of Section 10(10AA) of the Act the period of leave encashment cannot exceed more than 300 days as laid down in the Second Proviso to Section 10(10AA)(ii) of the Act • Total period of leave encashment would be 395 days (180 days + 215 days). • Assessing officer therefore proposed to restrict the claim for exemption under Section 10(10AA)(zz) for leave encashment in respect of 85 days and disallow the claim for exemption in respect of leave encashment for 95 days.
- 10. Brief Facts • Assessing officer however refused to accept the plea of the assesse due to the following reasons :- 1) The submissions made by the assessee are not correct 2) any part of the amount of such payment or payments was or were not included in the total income of the assessee 3) A clause shall not exceed the limit so specified as reduced by the amount or as the case may be the aggregate amount not included in the total income of any Previous year.
- 11. Conclusion • The appeal to the assesse is allowed • On the basis of :- 1) R.K. Ambady v. Income Tax Officer (1991) 36 ITD 315 (Mad.). 2) CIT v. N.J. Pavri 3) Mahim Patram (P.) Ltd. v. UOI