Salary & Perquisites

Salary & Perquisites — the law in short

Every authority in this library on salary & perquisites, with what each one decided.

• All India Bank Officers' Confederation v Central Bank Supreme CourtHelps departmentNo later treatment found
  My employer gave me a concessional staff loan. Is the interest I saved taxable as a perquisite?
  Yes. Interest-free and concessional employer loans are fringe benefits and therefore perquisites, and the Supreme Court upheld both s.17(2)(viii) and the Rule 3(7)(i) valuation pegged to the State Bank of India prime lending rate as neither arbitrary nor contrary to Article 14.
• State Bank of India v Assistant Commissioner of Income Tax Supreme CourtHelps department
  My client is an employer facing a s.201 order for not deducting on LTC where the employees' itineraries included a foreign leg but the reimbursement was limited to the domestic shortest-route fare. Is the bona fide estimate defence available?
  No. The Supreme Court held that the moment an employee undertakes travel with a foreign leg it is not travel within India and the payment is outside s.10(5), so the employer was bound to deduct under s.192(1) and was rightly held an assessee in default. It rejected the argument that the reimbursement having been confined to the shortest domestic route saved the exemption, and it rejected the bona fide mistake defence because the employer had the complete travel details before it when settling the bills.
• Additional Commissioner of Income Tax v Bharat V. Patel Supreme CourtHelps taxpayerSuperseded by amendment
  The Assessing Officer wants to tax what my client received on redemption of stock appreciation rights granted by the foreign parent as a perquisite. Is there Supreme Court authority on this?
  There is, but read the year carefully. For a redemption before 1 April 2000 the Supreme Court held the amount was not taxable: it fell within clause (iiia) of s.17(2), which was inserted by the Finance Act 1999 with effect from 1 April 2000 and was not retrospective, and it could not be forced into s.17(2)(iii) or s.28(iv). The Court held that a receipt must be made taxable before it can be treated as income.
• ITC Ltd v CIT (TDS) Supreme CourtHelps taxpayer
  Our restaurant and banquet bills carry a tip that the customer adds on the card. The money lands in our bank account and we hand it to the staff with their wages. The department says that is salary we should have deducted on. Is it?
  No. The Supreme Court held that a tip is not salary at all, and that the route it travels — cash into the waiter's hand or a card entry through the employer's bank account — makes no difference. Section 15(b) taxes what is paid or allowed by or on behalf of an employer, and the word employer presupposes a contract of employment; the employee has no vested right to claim a tip from his employer, and the amount has no reference to his contract of employment. The employer receives the money in a fiduciary capacity as trustee and is only a conduit between customer and staff. The tip is the employee's income from other sources under section 56(1). Section 192 is therefore not attracted, the employer is not an assessee in default, and no interest under section 201(1A) arises.
• CIT v Eli Lilly & Co (India) P Ltd Supreme CourtCuts both waysSuperseded by amendment
  The TDS officer says I under-deducted under s.192. If my estimate was made honestly, does that answer the demand, the interest and the penalty?
  It answers the penalty, not the tax and not the interest. The Supreme Court treated s.192(1) as requiring the employer to estimate the salary — an exercise akin to computation — and held that where there was a shortfall the officer proceeds under s.201(1) to recover it and interest under s.201(1A) runs from the date the tax was deductible to the date the tax was actually paid. On penalty it held that s.271C should not be invoked where the issue was a nascent one and the employers had acted bona fide.
• CIT v Larsen & Toubro Ltd Supreme CourtHelps taxpayer
  As an employer, must I collect bills and tickets from employees before treating leave travel concession or conveyance allowance as exempt while deducting tax under section 192?
  No. The Supreme Court dismissed the department's appeals on 21 January 2009, holding that an employer is under no statutory obligation, under the Act or the Rules, to collect evidence that its employees actually spent the amounts paid as leave travel concession or conveyance allowance. Two reasons are given. The beneficiary of the exemption under section 10(5) is the individual employee, not the employer. And there is no circular of the Central Board of Direct Taxes requiring an employer, when deducting under section 192, to collect and examine material supporting the declaration the employee submits. The appeals were dismissed with no order as to costs.
• CIT v Infosys Technologies Ltd Supreme CourtHelps taxpayer
  My employees exercised stock options but the shares are locked in and non-transferable. Was I supposed to deduct tax on the market value less what they paid?
  No, on the law as it stood before 1 April 2000. The Supreme Court dismissed the Revenue's appeals and held that the company was not an assessee in default. The shares were locked in for five years, held by the trust, stamped non-transferable and notified as such to the stock exchange, and had to be returned if the employee left. They had no realisable value on the date the option was exercised and there was no cash inflow, so any benefit was notional and its value unascertainable. Section 17(2)(iiia), which supplied the missing valuation mechanism from 1 April 2000, was held not to be clarificatory or retrospective.
• Arun Kumar v Union of India Supreme CourtHelps taxpayerSuperseded by amendment
  The officer has valued my company flat under Rule 3 and added the difference to my salary. I pay the licence fee my employer charges everybody. Must he first prove I actually got a concession in rent?
  On the law as the Supreme Court found it in 2006, yes: 'concession' in s.17(2)(ii) is a jurisdictional fact, and Rule 3 is only a machinery provision that cannot be reached until the officer has first found as a fact that a concession was given. That space was closed almost at once — the Finance Act 2007 inserted the very deeming provision the Court said the Act did not contain, with retrospective effect from 1 April 2002, so from AY 2002-03 a concession is deemed wherever the value computed under Rule 3 exceeds the rent recovered.
• Sedco Forex International Drill Inc v CIT Supreme CourtHelps taxpayer
  My foreign employees work on rigs in India for a month and then spend a month on standby at home. Is the salary for the off period taxable in India for years before 2000-01?
  No. The Supreme Court held that salary paid for field breaks spent in the United Kingdom was not earned in India for assessment years 1992-93 and 1993-94. Under the Explanation to section 9(1)(ii) as it stood from 1979, only salary payable for service rendered in India was deemed earned in India, and these employees rendered no service here in the off period; they were training and standing by for work anywhere in the world. The Explanation substituted in 1999, which brings in rest and leave periods, takes effect from 1 April 2000 and does not reach back.
• V.M. Salgaocar & Bros P Ltd v CIT Supreme CourtHelps taxpayerSuperseded by amendment
  For old years, was an interest-free loan from my employer taxable as a perquisite?
  No - but only for years before the charge was specifically provided for. The Supreme Court held that granting an interest-free or concessional loan to an employee does not result in a taxable benefit or perquisite 'unless specifically so provided', reading the 1984 insertion and 1985 omission as Parliament declining to tax it.
• Emil Webber v CIT Supreme CourtHelps department
  My Indian contract says my pay is free of Indian tax and the Indian company pays the tax for me. Is that tax itself taxable in my hands?
  Yes. The Supreme Court held that tax paid by an Indian company on an expatriate's salary, under an obligation to pay him free of Indian tax, is itself income of the expatriate. The definition in section 2(24) is inclusive and does not rob income of its natural meaning; anything properly described as income is taxable unless exempted. The payment was made for and on behalf of the assessee, was not gratuitous, and had an integral connection with the salary he received. Since he was not an employee of the company that paid, it fell under section 56 as income from other sources. The appeals were dismissed.
• Gestetner Duplicators P Ltd v CIT Supreme CourtHelps taxpayer
  We pay our salesmen a turnover commission on top of salary and contribute to the provident fund on both. Is the contribution on the commission deductible?
  Yes. The Supreme Court held that commission payable to salesmen as a term of the contract of employment, at a fixed percentage of turnover, is salary within rule 2(h) of Part A of the Fourth Schedule, so the provident fund contribution referable to it is deductible under section 36(1)(iv). Salary and wages both mean remuneration for work done, and it makes no difference that one part is measured by time and the other by turnover; the whole remuneration partakes of the character of salary. The Court also held that while recognition of the fund stands, the assessing authorities cannot question whether it meets the conditions for recognition.
• CIT v R.M. Chidambaram Pillai Supreme CourtHelps taxpayerSuperseded by amendment
  I draw a salary from my firm, which grows and manufactures tea. Only 40 per cent of the firm's income is taxable as business income - is my whole salary taxable, or only 40 per cent of it?
  Only the taxable proportion. The Supreme Court held that a firm is not a legal person, and since a contract of service needs two distinct persons there can be no contract of employment between a firm and its own partner. A salary agreed to a partner is therefore a special share of profits - profits under another name - and takes the character of the firm's income. Where the composite income from tea is apportioned so that 60 per cent is agricultural and beyond the Union's reach, 60 per cent of the partner's salary shares that character too. The position is different for a stranger who is not a partner.
• Ram Pershad v CIT Supreme CourtHelps department
  I am the managing director of my own company. I draw a monthly amount, a car allowance and a percentage of gross profits. Is the percentage salary, or can I show it as my own business income?
  On an agreement of this kind it is salary. The Supreme Court held that ten per cent of gross profits payable to a managing director under his appointment agreement was chargeable under section 7 of the 1922 Act as salary, not under section 10 as business income. There is no single test. A servant acts under the direct control and supervision of his master and an agent does not, but that is only a rough and ready test, and the answer turns on the nature of the business and the nature of the duties. A managing director has a dual capacity - director and employee - and which he is depends on the articles of association and the terms of his employment. Here the company itself carried on the business, he could be dismissed if his work was unsatisfactory, and he exercised his powers within the limits the articles set and subject to the control of the board whose decisions he carried out.
• Raj Kumar Singh Hukam Chandji v CIT Supreme CourtHelps taxpayer
  I am the karta and my family's funds bought the shares that qualified me to be managing director. Is my managing director's salary my own income or the family's?
  Your own, on these facts. The Supreme Court held that the managing director's remuneration received by Raj Kumar Singh was assessable as his individual income and not as the income of his Hindu undivided family. The broad test is whether the remuneration was in substance a return to the family for the investment of its funds in the business, or compensation for the services of the individual coparcener. Here he was elected managing director by the board, was paid for personal services, and was not appointed as a result of any outlay or detriment to family property. The office was one of personal responsibility and ability.
• CIT v L.W. Russel Supreme CourtHelps taxpayer
  My employer pays part of the premium on a superannuation policy, but I get nothing unless I stay until retirement. Is that contribution taxable as a perquisite in my hands now?
  No, on the scheme as it stood. The Supreme Court held that the employer's contribution was not a perquisite allowed to, or due to, the employee. Until he reached the age of superannuation the money vested in the trustees, and who would benefit depended on which contingency happened: if he left, was dismissed or died in service, he got back only his own share of the premiums, and the employer's share, subject to the trustees' discretion, went back to the employer. The employee had at best a contingent right. A perquisite cannot be allowed to an employee who has no right to it.
• CIT v Kalu Babu Lal Chand Supreme CourtHelps department
  Our karta is managing director of a company floated with family money. Is his remuneration his own income or the family's?
  The family's, on these facts. The Supreme Court held that as against the company the managing director is the individual appointed, and the company has nothing to do with his family. But as between him and his family the question is whether the remuneration was earned with the help of joint family assets. Here the family funds acquired the business, floated the company and financed it at every stage, the karta put in nothing of his own, and the articles named him as first managing director. Acquisition, floatation and appointment were inseparably linked, so the whole of Rs 61,282 was assessable in the family's hands.
• Hosur Bata Employees Union v Principal Chief Commissioner of Income Tax High CourtCuts both waysNo later treatment found
  My clients settled a wage dispute and took VRS and compensation for loss of future salary in two instalments. The company deducted TDS on the whole amount without giving s.89 relief. Can we make the employer refund it?
  No — not from the employer. The Madras High Court held that the employer cannot be found at fault for deducting tax at source in the absence of an application in Form 10E under Rule 21A, because s.192(2A) is what obliges the employer to compute and give s.89 relief and it operates only on the particulars the employee furnishes. The Court's remedy was to direct the employees to file returns under s.139(1) within thirty days and the Income Tax Officer to process them under s.143(1) and refund within two months.
• Ambalal Sarabhai Enterprises Ltd v DCIT High CourtHelps taxpayerNo later treatment found
  The Assessing Officer has swept my gratuity and leave encashment payments into the s.35DDA five-year spread along with the VRS compensation. Must terminal benefits be amortised too?
  No. The Gujarat High Court held that gratuity and leave encashment are post-retirement benefits accruing from actual service rendered, payable whether retirement is voluntary or on superannuation, and are ancillary to — not part of — the voluntary retirement scheme. Only the VRS compensation component falls into the one-fifth spread under s.35DDA; the terminal benefits are deductible in full.
• CIT v Dr Balabhai Nanavati Hospital High CourtCuts both waysNo later treatment found
  After a survey the TDS officer says my consultant doctors are employees and wants 192 instead of 194J. Is he right?
  Not on these facts, and only part of the case was decided. On the doctors the High Court found no substantial question of law: they are appointed on probation for qualification and specialisation, receive no fixed monthly remuneration, are free to practise at other hospitals, get no PF or ESIC and no perquisites, attend according to patients' needs, and the hospital exercises no real supervisory control; the doctors had also returned the receipts as business or professional income. The separate maintenance-contract question was not answered — the Tribunal's order on it was set aside and the matter sent back for a contract-by-contract finding, and the assessee-in-default question on that limb goes with it.
• Manjeet Singh Chawla v Dy CIT (TDS) High CourtHelps taxpayerHigh Courts differ
  If the payment for the fall in option value is not salary, is it capital gains?
  On this decision, neither. The Karnataka High Court held that compensation for the diminution in value of stock options that were never exercised is a capital receipt not chargeable under any head, and quashed the order rejecting the employee's application for a nil withholding certificate.
• All India Central Bank Officers Federation v Union of India High CourtHelps departmentNo later treatment found
  My client is a bank officer taxed on a deemed concession in rent for the bank's quarters even though the market rent is lower than the percentage of salary applied. Is the deeming provision open to challenge?
  Not on the grounds run so far. A Division Bench of the Bombay High Court dismissed a batch of writ petitions by bank officers' associations challenging Explanations 1 to 4 below s.17(2) inserted by the Finance Act 2007 with limited retrospective effect. It held the legal fiction is not an impermissible legislative override of Arun Kumar v Union of India, that the retrospectivity is valid, and that classifying by city population and measuring the concession as a percentage of salary does not offend Article 14.
• Ravi Kumar Sinha v Commissioner of Income Tax High CourtHelps taxpayer
  I got shares under my employer's stock purchase scheme but they were locked in and I could not sell them. Can the department tax me on the difference between the stock exchange price and what I paid?
  No. The Delhi High Court held that where the shares carry a lock-in and cannot be traded or sold, the fair market value cannot be taken above the face value, so on these facts the determinative figure was Rs 15 per share. The quoted stock exchange price was irrelevant because the shares could not be sold in the open market. The valuation report the employer had obtained from its accountants, putting the value at Rs 22.50, was at best a means for the employer to gauge its withholding obligations and could not fix fair market value for the employee. The assessee's appeal was allowed and the Tribunal's order set aside.
• Nishithkumar Mukeshkumar Mehta v Dy CIT High CourtHelps departmentUnder appeal
  Is compensation for the fall in value of stock options taxable as salary if I keep the options?
  Yes, on this decision. The Madras High Court held that where the employee paid nothing for the options and kept all of them after receiving the compensation, the whole receipt was a perquisite taxable under the head Salaries, and refused the nil-deduction certificate sought under s.197.
• Sanjay Baweja v Dy CIT High CourtHelps taxpayerHigh Courts differ
  My employer paid me for the fall in value of options I never exercised. Is that a perquisite?
  No, on this decision. The Delhi High Court held that a one-time voluntary payment made to holders of unexercised stock options after a group disinvestment was not a perquisite under s.17(2)(vi), because the value of specified securities depends on the exercise of the option and no option had been exercised. The refusal of a nil-deduction certificate under s.197 was set aside.
• Dr Mathew Cherian v ACIT High CourtHelps taxpayer
  I'm a consultant doctor at a hospital. Can the AO reopen and tax my fees as salary?
  Not on this material. The Madras High Court set aside the s.148A(d) order and s.148 notice: the contracts showed professional autonomy, a variable fee tied to patient volume, no statutory employment benefits and freedom to practise privately, so there was no information suggesting escapement of income.
• State Bank of India v ACIT (TDS) High CourtHelps departmentNo later treatment found
  Staff booked a consolidated package tour with a foreign leg. Can we exempt the Indian part as LTC?
  No. Where the tour operator charges a consolidated amount for the whole journey including the domestic portion, there is no severable Indian leg on which s.10(5) can operate, and the employer was rightly treated as an assessee in default under s.201(1) and s.201(1A).
• Kenneth Malcolm Holland v DCIT (International Taxation), Gurgaon High CourtHelps departmentNo later treatment found
  My client is a US national who came to India to teach and wants the two-year professors' exemption in the treaty. He has no Tax Residency Certificate from the US and the department will not give him an Indian one. Can he still claim the exemption?
  No. The Punjab and Haryana High Court held that a non-resident claiming relief under a treaty is hit by s.90(4) unless he obtains a certificate of residence from the government of the country of which he claims to be resident, and that a passport, an appointment letter and Form 16 are no substitute. The department's order, recited at para 4 and left undisturbed, had also said that under Rule 21AB(3) it is a person resident in India who may apply to the Assessing Officer for a certificate of residence, so that a non-resident cannot obtain an Indian TRC; the Court dismissed the writ on s.90(4) alone and made no finding of its own on that rule.
• Hosmat Hospital P Ltd v ACIT High CourtCuts both waysNo later treatment found
  I engage salaried doctors, in-house consultants and visiting consultants. Can the officer treat them all alike?
  No — but you get a rehearing, not a finding. The Karnataka High Court set aside the Tribunal order treating the hospital as an assessee in default and remitted the matter, holding that the AO must reconsider the question with attention to the hospital's incentive policy and the returns the doctors actually filed.
• G. Srinivasan v Union of India — the twenty-lakh gratuity ceiling applies by date of retirement, and a PSU retiree who left before 29 March 2018 cannot have it High CourtHelps departmentNo later treatment found
  My client retired from a public sector undertaking a few weeks before 29 March 2018 and was paid twenty lakhs of gratuity, but tax was deducted on ten lakhs of it. Central Government employees had already been given the twenty-lakh ceiling from 1 January 2016. Can I get the higher exemption on Article 14 grounds?
  No. The Madras High Court dismissed exactly that writ petition. The increased ceiling in section 4(3) of the Payment of Gratuity Act came into force on 29 March 2018 and CBDT notification S.O. 1213(E) applies the twenty-lakh income-tax limit only to employees who retire, become incapacitated or die on or after that date or whose employment is terminated on or after it; the Court held it could not push either instrument back to 1 January 2016, that employees of the Central Government and of public sector undertakings are not a single homogeneous class, and that an exemption provision must be construed strictly with ambiguity resolved in favour of the Revenue.
• CIT (TDS) v Oil and Natural Gas Corporation Ltd High CourtHelps taxpayer
  I am the employer. I treated the uniform allowance as exempt on my employees' self-certification and did not call for bills. The TDS officer has made me an assessee in default under s.201. Was I obliged to verify that each employee actually spent the money?
  No. The High Court held that the employer's liability under s.192 is to deduct tax to the extent of the employee's taxable income, and that where part of that income is exempt there is no liability to deduct from it. A certificate from the employee that he has incurred the expenditure is adequate for the disbursing officer when computing the tax deductible; whether the employee can in fact substantiate the claim is a matter for the employee's own assessment and has no bearing on the employer's estimate. The demand under s.201(1) and the consequential interest were rightly deleted.
• Kamal Kumar Kalia v Union of India High CourtHelps department
  I retired from a nationalised bank. Am I a government employee for the full leave encashment exemption under s.10(10AA)?
  No. The Delhi High Court rejected that challenge. Employees of public sector undertakings and nationalised banks do not become Central or State Government employees merely because their employer is treated as 'State' under Article 12 of the Constitution, so their leave encashment is exempt only under the capped second limb of s.10(10AA)(ii). On the separate grievance that the notified ceiling had not been revised since 1998 the Court expressed only a prima facie view and issued notice; that part of the petition was still pending in 2026.
• Pr. CIT (TDS) v National Health and Education Society — hospital consultants' fees fall under s.194J, not s.192 High CourtHelps taxpayer
  The TDS officer says our consultant doctors are really employees, that their fees are salary, and that we should have deducted under s.192 instead of s.194J. Is he right?
  Not on these facts. The hospital engaged Hospital Based Consultants and deducted under s.194J. The Assessing Officer held they were employees, that s.192 applied, and passed orders under s.201 treating the hospital as in default; the Commissioner (Appeals) and the Tribunal went against him on that point and the Revenue appealed under s.260A. The Bombay High Court held the question squarely covered by its own earlier Division Bench decision in Commissioner of Income-tax (TDS), Pune v Grant Medical Foundation (Ruby Hall Clinic), where the same Court had held that no relationship of employer and employee existed between a hospital and its consultant doctors and had answered the question in favour of the assessee. No substantial question of law arose, and all six appeals were dismissed with no order as to costs. Questions on s.194C versus s.194J for outsourced services and on drug handling charges were held to turn on findings of fact, and a question on the time limit for orders under s.201(1) was left open as academic.
• R. Banumathy v Commissioner of Income Tax-I High CourtHelps taxpayer
  My client missed the s.10(10C) exemption in the original return, filed a revised return that the officer lodged as invalid, and the Commissioner rejected the s.264 revision. Is there anything left?
  Yes. The Madras High Court set aside the s.264 order and directed refund of the excess tax, holding that the exemption under s.10(10C) up to five lakh rupees was available to the employee of a bank under an early retirement option scheme and that Rule 2BA cannot cut down the section. It added that where an assessee pays excess tax it is the Department's bounden duty to tell him of the reliefs he is entitled to and to refund the excess.
• Sumana Bandyopadhyay v DDIT High CourtHelps taxpayer
  The AO taxed my foreign salary because it landed in my Indian NRE account. Can he do that if I am a non-resident?
  No. Salary that became due and accrued to a non-resident for services rendered outside India does not become chargeable on a receipt basis merely because the foreign employer paid it into an Indian NRE account. Income accrues where the services are rendered, not where the money is banked, and the High Court allowed the appeal and answered the question in the assessee's favour.
• Utanka Roy v Director of Income Tax High CourtHelps taxpayerNo later treatment found
  I am a non-resident. I worked on a foreign employer's ship outside India for most of the year and was paid by that foreign company. The department says the salary is taxable in India. Where does salary accrue?
  Where the services are rendered. The Calcutta High Court held that for a non-resident, whose total income is governed by s.5(2), the place of accrual has to be found, and for that purpose the place where the services were rendered is what matters; the source of the income is not relevant. A marine engineer who had rendered services outside India for 286 days and had received his remuneration from a foreign company had received income outside India, and both the s.143(1) intimation and the s.264 order were set aside.
• CIT v Pritam Das Narang High CourtHelps taxpayer
  A company withdrew my job offer before I joined and paid me compensation. Is that taxable as salary?
  No. The Delhi High Court held that s.17(3)(iii) presupposes an employment, that is a relationship of employer and employee between the payer and the recipient. Where the offer was withdrawn before the employment began, no such relationship ever existed, and the amount paid for non-commencement of employment was a capital receipt, not taxable as profits in lieu of salary or as income from other sources.
• CIT v State Bank of Mysore High CourtHelps taxpayerNo later treatment found
  My VRS does not satisfy Rule 2BA. The Commissioner says that kills my s.35DDA deduction as employer. Does it?
  No. The Karnataka High Court held that Rule 2BA is a guideline for the purposes of s.10(10C) — the exemption in the retiring employee's hands — and has nothing to do with the employer's claim under s.35DDA. s.35DDA makes no mention of any rule. The employer's deduction is nevertheless confined to one-fifth in the year of payment, with the balance spread over the four succeeding years.
• DIT v Manoj Kumar Reddy Nare High CourtHelps taxpayer
  I work abroad on deputation and came back to India for a few weeks. Do those days count against me under the 60-day test?
  No, on these facts. The Karnataka High Court declined to interfere with a concurrent finding that, excluding the time during which the assessee was visiting India, he was not in India for the requisite 60 days, so he was a non-resident and could not be taxed as a resident under s.6(1)(c). The Revenue's appeal was dismissed for want of a substantial question of law.
• CIT v Deepak Verma High CourtHelps taxpayerSuperseded by amendment
  My employer gave me a lump sum on top of my normal dues when I resigned, described in the letter as a one-off ex gratia. The officer says it is profits in lieu of salary. Is it?
  Not under s.17(3)(i), because clause (i) taxes 'compensation' and a payment the employer makes voluntarily, in its own discretion, with no vested right in the employee, is not compensation. But do not stop there: the Delhi High Court reached that result only because the assessment year was 2001-02, and it said in terms that s.17(3)(iii), inserted with effect from 1 April 2002, 'would squarely cover the nature of payment received by the assessee'. For AY 2002-03 onwards an ex gratia received after cessation of employment is taxable as salary.
• CIT v Smt. Rani Shankar Mishra High CourtHelps taxpayer
  I received a settlement from a foreign state employer for a job I applied for but was never given. The officer says s.17(3)(iii) taxes anything received before joining employment. Does it reach me?
  No. Section 17(3)(iii) presupposes an employment with the person paying: sub-clause (A) covers the period before the assessee joins that employment and sub-clause (B) the period after it ceases. Where there never was and never could have been an employer-employee relationship, the receipt is not profits in lieu of salary at all, and compensation for having been denied the job is a capital receipt.
• CIT v Koodathil Kallyatan Ambujakshan High CourtHelps taxpayerSuperseded by amendment
  My employer's early retirement scheme does not spell out every condition in Rule 2BA. Does that destroy the s.10(10C) exemption?
  Not on these facts. The Bombay High Court upheld the exemption for employees who took the Reserve Bank of India's Optional Early Retirement Scheme, holding that the six requirements of Rule 2BA were satisfied expressly or by implication on the material on record, including evidence that the vacancies were not filled. That is what the decision is still good for. Its second holding — that relief under s.89 is available on the amount above Rs 5,00,000 in addition to the exemption — states the law only for assessment years up to 2009-10. From assessment year 2010-11 the proviso to s.89 and the third proviso to s.10(10C), inserted by the Finance (No. 2) Act, 2009 with effect from 1 April 2010, make the exemption and the relief alternatives, and claiming s.89 relief forfeits the Rs 5,00,000 exemption 'in relation to such, or any other, assessment year'. The Court also applied the Supreme Court's ruling in Hero Cycles that a Board circular binds the Assessing Officer but not the appellate authorities, the Tribunal or the Court.
• National Federation of Insurance Field Workers of India v Union of India High CourtHelps departmentHigh Courts differ
  LIC has started deducting tax on the conveyance allowance and additional conveyance allowance paid to development officers. Can the employees stop the deduction on the footing that the allowances are exempt under s.10(14)?
  The Orissa High Court said no and dismissed the writ petition. It held that after the 1987 amendment to s.10(14) and the insertion of Rule 2BB, the entire conveyance allowance and additional conveyance allowance are not exempt unless the expenses are actually incurred and that is proved to the satisfaction of the Assessing Officer; the employer remains bound to deduct under s.192, and the employee must establish the exemption in his own assessment.
• CIT v Nagesh Devidas Kulkarni High CourtHelps taxpayerSuperseded by amendment
  I took voluntary retirement. Can I claim both the s.10(10C) exemption and s.89 relief on the balance?
  Only for assessment years up to 2009-10. The Bombay High Court held that a voluntary retirement payment is compensation received in connection with the termination of employment and so is 'profits in lieu of salary' under s.17(3), and that relief under s.89 was therefore available on the amount taxed over and above the Rs 5,00,000 exempted by s.10(10C). That was the position for the year before the Court, assessment year 2002-03. From assessment year 2010-11 the two are alternatives by statute: the proviso to s.89 and the third proviso to s.10(10C), both inserted by the Finance (No. 2) Act, 2009 with effect from 1 April 2010, mean that claiming the s.10(10C) exemption bars s.89 relief on the same receipt, and that taking s.89 relief forfeits the exemption — not only for that year but 'in relation to such, or any other, assessment year'. What survives of this decision is its holding that a voluntary retirement payment is 'profits in lieu of salary' under s.17(3).
• S.D.S. Mongia v Central Board of Direct Taxes — a receipt excluded by s.10(13) does not become taxable because the assessee offered it, and Article 226 can correct that even where the s.264 revision is time-barred High CourtHelps taxpayer
  My client offered a superannuation fund receipt to tax for several years before realising it was exempt. His section 264 revision has been rejected as time-barred and the assessment years are closed. Is there anything left?
  The Delhi High Court gave relief on exactly those facts. It upheld the Commissioner's rejection of the section 264 revision as barred by limitation, but held that the constraints felt by the Commissioner under section 264 do not impinge on the Court's powers under Article 226; that Article 265 mandates that no person shall be taxed without the authority of law; and that since there was no authority to tax the annuities the petitioner had received, it was appropriate to exercise the extraordinary jurisdiction to correct the injustice even though the injustice was of the assessee's own making.
• CIT v G.V. Venugopal High CourtHelps taxpayerSuperseded by amendment
  I took VRS from a bank and claimed the Rs 5 lakh exemption under section 10(10C). Can I also claim spread-over relief under section 89(1) on the balance?
  Yes, for the years this judgment governs. The Madras High Court held that exemption under section 10(10C) up to Rs 5 lakh and relief under section 89(1) on the balance VRS compensation are two separate benefits, and nothing in the Act barred taking both. The second proviso to section 10(10C) only stops a second exemption under that clause in another assessment year; it says nothing about section 89(1). VRS compensation is a profit in lieu of salary under section 17(3), so section 89(1) applies to it. The Department's appeal was dismissed.
• SAIL DSP VR Employees Association 1998 v Union of India High CourtCuts both ways
  My VRS compensation is being paid to me in instalments over ten years. Does the section 10(10C) exemption still apply, or is it lost once the payments cross into later years?
  It still applies. The Calcutta High Court held that the whole compensation became due when the employee was released under the scheme and was chargeable under section 15(a) at that point, whether paid or not. Spreading the payment over ten years does not turn the later instalments into salary of those later years, so the second proviso to section 10(10C) is not attracted. The exemption up to Rs 5 lakh runs on the compensation component alone. Terminal benefits paid under the same scheme, such as gratuity and leave encashment, are not part of the amount received on voluntary retirement and are not covered.
• Life Insurance Corporation of India v Union of India High CourtHelps taxpayerHigh Courts differ
  Is there any High Court authority the other way on the LIC development officers' conveyance and additional conveyance allowance, and how far does it actually go?
  Yes. The Rajasthan High Court held that development officers of the LIC are entitled to claim exemption under s.10(14) for conveyance allowance and additional conveyance allowance, and directed the Department not to insist on the LIC deducting tax at source on them. But the holding is expressly conditional: it applies only upon the officers satisfying that the allowances were actually spent wholly, necessarily and exclusively in the performance of duties, and the Court twice said the ultimate liability of claiming and proving the exemption is on the employee.
• CIT v Gopal Krishna Suri High CourtHelps departmentHigh Courts differ
  I spend my own money to earn the incentive part of my pay. Can I deduct that expenditure before the amount is taxed as salary?
  No. Once a receipt falls under the head Salaries, the only deductions available are those s.16 allows; there is no provision permitting expenses incurred to earn salary to be taken out at the threshold, and 'income' in s.15 does not mean net of such expenses. An LIC development officer's incentive bonus is in the nature of commission, falls within the inclusive definition of salary in s.17(1)(iv), and is taxable in full.
• CIT v D.P. Malhotra High CourtHelps taxpayer
  My client resigned; he did not superannuate. The officer says s.10(10AA) is only for retirement, so his leave encashment is fully taxable. Is that right?
  No. Resignation is a mode of retirement, and s.10(10AA) applies to leave encashment received on resignation just as it does on superannuation. The clause says 'at the time of his retirement whether on superannuation or otherwise', and the Bombay High Court held that how the retirement came about is immaterial.
• K. Gopalakrishnan v Central Board of Direct Taxes High CourtHelps departmentNo later treatment found
  For the s.10(10) gratuity and s.10(10AA) leave encashment limits, can I compute 'salary' on the pay my employer actually used — basic plus all the allowances that went into provident fund pay?
  No. The Explanation to s.10(10) fixes 'salary' for both s.10(10) and s.10(10AA) as the meaning in clause (h) of rule 2 of Part A of the Fourth Schedule — basic pay plus dearness allowance if the terms of employment so provide, and nothing else. The Madras High Court held there is no ambiguity in that definition and it must be applied; it also upheld the differential treatment of government and non-government employees in both clauses against Article 14.
• Dr J.M. Mokashi v CIT High CourtHelps departmentHigh Courts differ
  I pay my wife a salary in my own professional practice. She has no degree but she does the work. Can the Assessing Officer club that salary with my income under s.64(1)(ii)?
  On the Bombay High Court's view, yes. The proviso to s.64(1)(ii) contains two conditions and both must be satisfied: the spouse must possess technical or professional qualifications, and the income must be solely attributable to the application of his or her technical or professional knowledge and experience. Knowledge and experience in the second condition cannot be read back into the first, so a spouse who does the work competently but holds no qualification fails at the threshold.
• J. Lalhmingliana v Union of India High CourtHelps departmentNo later treatment found
  I am a member of a Scheduled Tribe from a specified area but I am posted outside it. Is my salary still exempt under s.10(26)?
  No. The Delhi High Court, applying the Supreme Court in N. Takin Roy Rymbai, held that s.10(26) requires both that the individual is a member of a Scheduled Tribe residing in a specified area and that the income accrues or arises from a source in that area. Government servants of the North-Eastern States posted outside the specified areas and earning salary there are not exempt, and the object of the clause is to benefit the area as well as the tribe.
• Gwalior Rayon Silk v CIT High CourtHelps taxpayer
  The TDS officer says I under-deducted on perquisites and wants the short tax under section 201(1) plus interest under section 201(1A). My estimate was honest. Does that answer the demand or only the penalty?
  It answers the demand itself. The Madhya Pradesh High Court held that section 192 obliges the employer to deduct on the estimated income of the employee, so the employer has to form an opinion on his employee's liability and must do so honestly and fairly. If the estimate later turns out to be wrong, that fact alone does not support an inference that he failed to act honestly and fairly, and an employer who has deducted and paid tax on an honest estimate cannot be treated as an assessee in default under section 201(1). Interest under section 201(1A) went with it, the revenue accepting that sub-section (1A) is not attracted where there is no default under sub-section (1).
• K.R. Kothandaraman v CIT High CourtHelps department
  The board passed a resolution after the year end stopping my remuneration because the company made no profit. The salary had already been credited to me month by month. Can I say it never accrued?
  No, on the Madras High Court's 1965 decision under s.7 of the 1922 Act, whose accrual principle s.15 of the 1961 Act carries forward. Once salary has accrued under the contract of service, a resolution passed after the close of the year cannot undo the accrual; at most it operates as a waiver, and a waiver after accrual is a disposal of income already earned, not a failure of income to arise. The real-income doctrine, which lets a managing agent's commission given up on grounds of commercial expediency be excluded from business income, does not extend to the accrual or receipt of salary.
• Ramamoorthy Sundar v ITO ITATHelps taxpayerNo later treatment found
  My client sat on an NFAC order restricting his leave encashment exemption for over a year, and only came to me after hearing that the limit is now Rs 25,00,000. Is the appeal dead on limitation?
  Not necessarily. The Tribunal condoned a delay of the order of five hundred days and then allowed the enhanced exemption of Rs 25,00,000 under s.10(10AA), treating the subsequent development on the judicial front and the CBDT notification as themselves part of the sufficient cause for the delay.
• Sumit Maloo v ITO, Kishangarh ITATHelps taxpayerNo later treatment found
  The Assessing Officer has disallowed my whole Chapter VI-A block — 80C, 80D, 80G — and my HRA, saying I filed no documentary evidence. I did file it. What do I do?
  The Jaipur Tribunal restored almost all of it, holding that where the assessee has actually placed the evidence on record the Assessing Officer and the CIT(A) cannot disallow "arbitrarily" without discussing those documents. On s.80D in particular the Tribunal allowed Rs 50,000 of medical expenditure incurred on a dependent father who was a senior citizen suffering from Parkinson's, on the strength of a doctor's prescription, the father's Aadhaar showing his age, and bank entries evidencing the spend — with no insurance policy at all.
• Vaishali Baban Bhosale v ITO ITATHelps taxpayerNo later treatment found
  My s.89 relief on salary arrears was disallowed in the intimation because Form 10E was not filed with the return. Is it lost?
  Not necessarily. The Pune Tribunal restored the claim to the Assessing Officer with a direction to verify it and allow the relief, where the assessee had filed Form 10E only years after the intimation. The Bench followed coordinate bench decisions holding that a delay in filing the form should not by itself defeat a relief the assessee is otherwise entitled to.
• Manmohan Singh v ITO ITATHelps taxpayerNo later treatment found
  I filed my return under the new regime by default, then filed a revised return within time switching to the old regime and claiming my exemptions and Chapter VI-A deductions. The CPC has processed it under the new regime saying the regime cannot be changed in a revised return. Can it?
  On this order, yes, for a salaried assessee with no business or professional income. The Tribunal held that a revised return filed in time under s.139(5) supersedes the original, that the proviso to s.115BAC(6) restricting the number of times the option may be exercised does not apply where there is no business or professional income, and that the filing of Form 10-IEA is procedural — the delay in filing it was condoned and the fact of filing it satisfied the requirement. The Assessing Officer was directed to process the revised return under the old regime with the exemptions and deductions claimed.
• Rajesh R Hemrajani v ITO ITATHelps taxpayerNo later treatment found
  When I sell ESOP shares, is my cost of acquisition under section 49(2AA) the fair market value used for the perquisite even if that perquisite was never actually taxed in India?
  Yes, on this order. The Mumbai Bench read the words of section 49(2AA) - the fair market value which has been taken into account for the purposes of section 17(2)(vi) - and held that the provision nowhere requires that value to have been subjected to tax in India or included in total income. The assessee, a non-resident working at the UK branch of L&T Infotech, exercised 1,540 options at Re 1 a share when the fair market value was Rs 1,753.58. The Assessing Officer had cut the cost of acquisition down to the exercise price and added Rs 29,59,332. The Tribunal held the fair market value was the cost and allowed the appeal.

The 60 strongest entries are summarised here. The other 62 entries are listed in full below, and each has its own page.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.