Madhavan R (78 Points)
30 August 2021
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(166601 Points)
Replied 30 August 2021
Refer: https://www.taxcorner.co.in/2020/01/recovery-of-notice-pay-for-notice-period-is-deductible-and-not-taxable-itat.H T M L
Madhavan R
(78 Points)
Replied 30 August 2021
Thanks for the help Mr Dhirajlal for update on pay out of notice pay held as non taxable.
This tax corner is not showing up in my Chrome browser and let me go through the entire decision in favour of the employee
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(166601 Points)
Replied 30 August 2021
EXTRACT FOR YOUR REFERENCE...."
We have heard the ld. Departmental Representative and the perused the material available on record. We find that during the year under consideration the assessee served with Reliance Communication for 39 days for the period 01.04.2009 to 09.05.2009 and received a total salary of Rs.1,64,636/-, out of which Rs.1,10,550/- was recovered as notice pay as per ITA No. 2378/Ahd/2013 Shri Nandinho Rebello vs. DCIT AY : 2010-11 agreement with the employer. Therefore, the assessee declared salary income of Rs.54,086/- after deducting notice pay of Rs.1,10,550/-. Thereafter, the assessee joined in Sistema Shyam Teleservices Ltd where he served for a period from 18.05.2009 to 24.02.2010 and received a total salary of Rs.13,95,880/- out of which Rs.1,66,194/- was deducted as notice pay as per agreement with employer. Therefore, notice pay of total Rs.2,76,744/- was claimed in the return of income as deduction which was recovered from the salary by assessee's previous employers as mentioned above. The Ld. CIT(A) was of the view that no such deduction is available under Section 16 of the Act and the salary income is taxable on due basis or on paid basis. After considering the facts as quoted above, we find that employers have made deduction from the salary which was paid to the assessee during the year under consideration because of leaving the services as per agreement made by the assessee and the respective employer. We find that this is a case of recovery of the salary which is already made to the assessee for which we have not to refer Section 16 of the Act as mentioned by the ld. CIT(A). It is pertinent to note that the assessee has actually received the salary from his previous employers after deducting the notice period as per the job agreement with them. Therefore, in our considered view, the actual salary received by the assessee is only taxable and therefore, we allow this ground of appeal of the assessee."
JUDGEMENT ATTACHED...
Madhavan R
(78 Points)
Replied 30 August 2021
Thanks a ton Sir
You have made a quantum contribution to IT sector employees who has pay hefty amount to their past employers not withstanding genuine reasons on health grounds to look after ageing parents in the Covid Times
I shall put this decision to the best utility amongst community members
v devanathan
(Partner of a CA Firm)
(132 Points)
Replied 30 August 2021
Eventhough the decision of ITAT Ahmd is favourable to the assessee as pointed out by Dhirajlal Rambhia ji, I fear that this may be questioned on the following grounds by the dept::
1. As rightly pointed out by the CIT(A) and held by various judicial forums, the salary is taxable on due or receipt basis, whichever is earlier under section 15 of the IT Act.
2. Generally, the payment of notice pay will have to be paid by resigned employee and is in lieu of serving of notice for a specified period of time (month/s) in advance and may always said to be an application of income.
3. The factual position of recovery of notice pay as mentioned in the subject decision needs to be examined as it may not be possible for the employer to recover, say 3 months notice, from the last of month salary of the employee owing to its inadequacy and would involve the payment of notice pay by employee, which is an application of income under the provisions of the Act.
4. The fact that the recovery of notice pay being spelt out in the employment agreement does not make it tax deduction under the provisions of the Income tax act
Madhavan R
(78 Points)
Replied 30 August 2021
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