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income-tax Officer Vs. P. Kumarachandran - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1983)4ITD329(Bang.)
Appellantincome-tax Officer
RespondentP. Kumarachandran
Excerpt:
.....of rs. 26,761, being the amount received by the assessee from an approved superannuation fund, is clearly excluded from sub-clause (ii) of section 17(3) and cannot be treated as 'profit in lieu of salary'. thus, the said amount is not taxable.10. the said amount cannot be charged as income from other sources as it is only on account of his employment that the assessee received the said amount. the tax is deducted at source under section 192(5). this shows that the deduction of tax was only on account of employer and employee relationship. thus, the source is only employment. thus, the amount received by the assessee is not assessable under the head 'income from other sources' also.11. in our view, the aac was right in directing the ito to exclude the sum of rs. 26,761. we uphold.....
Judgment:
1. There is a delay of two days in preferring this appeal. An affidavit has been filed giving the reasons for the delay. We accept the reasons given and condone the delay of two days in preferring this appeal.

2. The assessee was an employee of Voltas Ltd. He left the services of Voltas Ltd. and joined some other concern. He received Rs. 26,761 from Voltas Ltd., being the refund of contribution from the superannuation fund. This amount was claimed by the assessee as a capital receipt and not taxable. The ITO did not accept the claim of the assessee. He held that the refund of contribution is taxable in accordance with rule 6 of Part B of Fourth Schedule to the Income-tax Act, 1961 ('the Act'), and also not exempt under Section 10(75) of the Act. The assessee appealed to the AAC. The AAC held that Section 17(5)(ii) of the Act clearly states that the amount received by the assessee from an approved superannuation fund cannot be treated as 'profit in lieu of salary' and, therefore, the amount received by the assessee is not taxable.

Thus, he directed the ITO to exclude the same. Against the same, the revenue has preferred this appeal.

3. The learned departmental representative strongly urged that under rule 6 of Part B of Fourth Schedule, the employer has an obligation to deduct tax on contribution paid to an employee who does not come under Section 10(75). It is not the assessee's case that he comes under Section 10(75). In fact, the employer has deducted tax. This clearly shows that the amount received by the assessee is taxable. It was rightly taxed by the ITO. Once the assessee does not fall under Section 10(75), the amount received is liable to be taxed. It is not a capital receipt. Alternatively, he submitted that if it is not taxable under the head 'salary', it is taxable as income from other sources. He referred to certain passages at page 983 of Sampath Iyengar's commentary on Income-tax and at page 314 of Kanga's commentary on Income-tax. The learned counsel for the assessee strongly urged that the onus is on the revenue to prove that the amount received by the assessee is chargeable to tax. But, no provision has been pointed out under which it could be taxed. Since, the assessee is an employee, he can be charged to tax under the head 'salary'. The assessee does not fall under Section 17(3)(ii) as the amount received from the superannuation fund is excluded therefrom. The amount received cannot be assessed as income from other sources as the assessee's source of income is only salary and only on account of his employment the amount has been received from his employer.

4. We have considered the rival submissions. The assessee was an employee of Voltas Ltd. The employer Voltas Ltd. contributed certain amount every year, being employer's contribution towards superannuation fund. The assessee resigned from the said company. Thus, on his leaving the said company, he received Rs. 26,761 from his employer being the refund of contribution from the superannuation fund. The question for consideration is whether the said amount is taxable. It will be necessary to refer to the relevant provisions of the Act. Section 2(24) of the Act defines income which includes the value of any perquisite or profit in lieu of salary taxable under Clauses (2) and (i) of Section 17. Section 17(3) is the relevant provision for our consideration which reads as under: "profits in lieu of salary' includes-- (i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto ; (ii) any payment (other than any payment referred to in Clause (10), Clause (10A), Clause (10B), Clause (11), Clause (12) or Clause (13A) of Section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund (not being an approved superannuation fund) to the extent to which it does not consist of contributions by the assessee or interest on such contributions.

Where any contribution made by an employer, including interest on such contributions, if any, in an approved superannuation fund is paid to the employee, tax on the amount so paid shall be deducted by the trustees of the fund to the extent provided in rule 6 of Part B of the Fourth Schedule.

6. Deduction of tax on contributions paid to an employee.--Where any contributions made by an employer, including interest on contributions, if any, are paid to an employee during his lifetime, in circumstances other than those referred to in Clause (73) of Section 10, tax on the amounts so paid shall be deducted at the average rate of tax , at which the employee was liable to tax during the preceding three years during the period, if less than three years, when he was a member of the fund, and shall be paid by the trustees to the credit of the Central Government within the prescribed time and in such manner as the Board may direct.

10. Income not included in total income.--In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-- (i) any payment from an approved superannuation fund made--(i) on the death of a beneficiary ; or (ii) to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement ; or (iii) by way of refund of contributions on the death of a beneficiary ; or (iv) by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon ; Section 2(24) is an inclusive definition of income and under Sub-clause (iii) thereto, profit in lieu of salary taxable under Clauses (2) and (3) of Section 17 is also income.

5. Under Sub-clause (ii) of Clause (3) of Section 17, any payment received by an assessee from an employer from an approved superannuation fund cannot be treated as 'profit in lieu of salary'.

The amount received from an approved superannuation fund is clearly excluded under the above clause and cannot be treated as income. There is no other provision under which it can be charged to tax. The assessee does not claim exemption under Section 10(75) and so the question whether the assessee falls under Section 10(7-?) or not, does not come up for consideration.

6. It is well settled that the onus is on the department to prove that the receipt sought to be taxed as income comes within the taxing provisions. In Parimisetti Seetharamamma v. CIT [1965] 57 1TR 532, the Supreme Court held as under: By Sections 3 and 4, the Indian Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax, in all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where however a receipt is of the nature of income, the burden of proving that it is not taxable, because it falls within an exemption provided by the Act, lies upon the assessee. (p. 532) Thus, it was held therein that it is for the department to establish that the receipt was chargeable to tax. The above ratio squarely applies to the instant case.

7. The revenue is not able to point out any provision under which the amount of Rs. 26,761 received by the assessee can be brought to tax.

Under Section 58S of the 1922 Act, it was provided that any contributions repaid to an employee shall be deemed to be the income of the employee. But, there is no such provision under the 1961 Act. In Section 17(3)(ii), the words used are 'not being an approved superannuation fund'. Due sigificance should be given to those words.

In view of those words, the amount received from an approved superannuation fund are clearly excluded from Section 17(3). In fact, the Chokshi Committee in para 1-5.35, which reads as under, has pointed out the anomaly and recommended that this provision should be recast: 1-5.35: Rule 6 in Part B of the Fourth Schedule makes a provision for deduction of tax when contributions made by an employer to an approved superannuation fund, along with the interest on such contributions, if any, are paid to an employee during his lifetime in circumstances other than those referred to in Clause (13) of Section 10. The perusal of this rule, together with the provision in Clause (13) of Section 10 and the definition of 'profits in lieu of salary' in Section 17(3), indicates that the provisions, as they stand, do not achieve the purpose in view effectively. It is possible for an employee to c6ntend that any tax deducted at source from such payment should be refunded to him in the subsequent year in view of the specific provision in Section 17(5) that any payment from an approved superannuation fund is outside the purview of the definition of 'profits in lieu of salary'. We, therefore, recommend that these provisions should be recast so as to achieve their purpose and avoid unnecessary litigation.

The observations in the commentaries on Income-tax by Sampath Iyengar as well as Kanga also do not help the revenue. In fact, at page 984 of Sampath Iyengar's commentary, 7th edition, it pointed out that since the Act of 1961 such payments are excluded from the assessee's income and not chargeable.

8. Rule 6 of Part B of Fourth Schedule only prescribes the rate for deduction of tax at source under Section 192(5). Even rule 6 is not applicable if the assessee falls in one of the circumstances mentioned in Section 10(/3). Section lO(13)(iv) speaks of circumstances like refund of contribution to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement. In the instant case, the assessee left the service voluntarily" and permanently and not by retirement or by becoming incapacitated. Thus, the assessee falls under one of the circumstances mentioned in Section 10(73). So, rule 6 has apparently no application to the assessee's case.

9. Thus, in our view, the amount of Rs. 26,761, being the amount received by the assessee from an approved superannuation fund, is clearly excluded from Sub-clause (ii) of Section 17(3) and cannot be treated as 'profit in lieu of salary'. Thus, the said amount is not taxable.

10. The said amount cannot be charged as income from other sources as it is only on account of his employment that the assessee received the said amount. The tax is deducted at source under Section 192(5). This shows that the deduction of tax was only on account of employer and employee relationship. Thus, the source is only employment. Thus, the amount received by the assessee is not assessable under the head 'Income from other sources' also.

11. In our view, the AAC was right in directing the ITO to exclude the sum of Rs. 26,761. We uphold his order.


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