In our company we pay to the employees long term association bonus, which is payable to them on completion of 5 years of service.Certain proportion like 12% of the basic is getting accumulated towards this every month.As 5 years gets complete we pay accumulated amount to employee. Since after accumulation during 5 years it becomes huge and bring every employee into 30 % slap in that particular year otherwise he may be taxed @10% if we leave apart that amount.Can the employee claim relief under section 89 for this.
Also company claim expenses on payment basis in its financials and does not show any accumulation year wise in financial statements, they are just memorandum records for calculation basis.
30 May 2011
Thanks a ton Sir, But i am still confused as this case doesn't fall under the preconditions mentioned under section 89. It would be great if there any case law on this.
30 May 2011
As the salary has not been accounted for by the company, it has never accrued to the employee in the past. Employee was never in a position to show that accumulated part as his income in the years when such income was being accumulated.
Had the employee not serves for 5 years, he is not entitled for this lumps sum amount.
It is not difficult to prove that whatever the employee has received during the Previous Year, is something extra which is other than the annual salary.
If it exceeds the yearly salary then logically it is in respect of either past services or in respect of future services. ( Arrears or Advance Salary)
As such preconditions of Section 89 are being satisfied prima facie and Relief can be claimed U/s 89.
CAclubindia
