Law: Income Tax Act, 1961

Section: 17,89

Income-tax----Salary---Profits in lieu of salary---Encashment of unavailed leave-received after retirement before 1-4-1978---Assessable as profit in lieu of salary--¬Indian Income Tax Act, 1961, Ss. 17 & 89. In view of the provisions contained in section 17(1)(v-a) of the Income Tax Act, 1961, introduced by the Taxation Laws Amendment Act, 1984, the encashment of leave salary is taxable from April 1, 1978, onwards. According to the unamended provision of section 17, profit in lieu of salary is liable to be taxed. Encashment of leave salary is profit in lieu of salary and, therefore, taxable under section 17(3) of the Act prior to the amendment. Krishna Murthy M. v. CIT (1985) 152 ITR 163 (AP); Patil Vijaykumar v. Union of India. (1985) 151 ITR 48 (Kar.) and All India Defence Accounts Association, In re: Shailendra Kumar v. Union of India (1989) 175 ITR 494 (All.) fol. JUDGMENT THANIKKACHALAM, J.---At the instance of the Revenue for the assessment year 1974-75, the Tribunal referred the following question for the opinion of this Court, under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"): "Whether, on the facts and in the circumstances of the case, the sum of Rs.22,730 received on account of encashment of unavailed leave by the assessee at the time of retirement was not taxable under the Income Tax Act, 1961 ?" The assessee is an individual, who was earning salary from his employment from the Madras Fertilizers Ltd. During the previous year ended March 31, 1974, corresponding to the assessment year 1974-75, the assessee retired. On retirement, he received a sum of Rs.22,730 by encashment of the unutilised leave standing to his credit. The assessee filed a return showing an income of Rs.62,572 including the sum of Rs.22,730 and claiming the spread over of this amount under section 89(1) of the Act. The assessment was originally completed under section 143(1)(a) disallowing the claim. The assessee then applied under section 143(2)(a) objecting to the assessment of the sum of.Rs.22,730. But the Income-tax Officer repeated the assessment in the view that section 89(1) had no application to encashment of leave salary. The…

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