COMMISSIONER OF INCOME TAX Vs. S N CHADHA

JUDGEMENT

(1.) AT the instance of Revenue, following questions have been referred for opinion of this Court under s. 256(1) of the INCOME TAX ACT, 1961 (in short the 'Act') by the Income -tax Appellate Tribunal, Delhi Bench 'A' New Delhi (in short, the 'Tribunal') :

(2.) FACTUAL position, which is almost undisputable is essentially as follows : For the asst. year 1972 -73 corresponding to financial year 1971 -72, assessee an individual claimed relief under S. 89(1) of the Act in respect of Rs. 10,709 received on account of encashment of accumulated leave. ITO rejected the claim on the ground that such relief was admissible only in response to assessee's salary being paid in arrears or in advance or by reasons of salary for more than 12 months having been received in any one financial year. He held that the amount received by assessee on encashment of accumulated leave did not represent either arrears or advance of salary and, therefore, S. 89(1) had no application. Assessee challenged the matter in appeal before the AAC. Said authority was of the view that assessee was entitled to relief under S. 89(1) as according to him, payment in question could be brought within the scope of S. 17(1)(vi) of the Act and, therefore, was included within the term "salary". Revenue carried the matter in appeal before the Tribunal. It assailed AAC's conclusion on the ground that S. 17(1)(vi) had no application. Tribunal analysed the provisions of S. 17 of the Act and observed that AAC was not correct in holding that the payment received on encashment of accumulated leave is covered by S. 17(1)(vi) of the Act It was noted that the said provision only deals with "annual accretion to the balance at the credit of an employee participating in a recognised provident funds". Tribunal however observed that according to S. 17(1)(iv) of the Act, the expression "salary" included "profits in lieu of or in addition to any salary or wages" and that according to S. 17(3)(ii). "profits in lieu of salary" included any payment, other than those specifically mentioned therein, received by an assessee from an employer or a former employer, to the extent to which it did not consist of contributions made by the assessee or interest on such contributions". It was, therefore, held that the amount in question falls under the category of "profit in lieu of salary" under S. 17(3)(ii) and consequently forms part of the salary of the assessee. It was further held that provisions of S. 89(1) of the Act applied to the facts of the case. On being moved by the Revenue questions as set out above have been referred for opinion of this Court.

(3.) WE find that a new provision i.e., S. 17(1)(va) was introduced from 1st April, 1978. After the inclusion, the provision reads as :