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U/s 89(1) and vrs

Supriyo Banerjee (Executive Finance) (181 Points)

11 March 2012

Why an individual cannot get relief u/s 89(1) and VRS u/s10(10c) at the same assessment year.....?

Means how these two are related? plz give an example or refer case laws if any....if possible ?

thank you.....

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CA SACHIN VIJ (Chartered Accountant) (112 Points)
Replied 12 March 2012

I HOPE THE QUOTATION WOULD HELP...

All that the second proviso to Sec. 10(10C) does is to place a restriction on a second claim under Sec. 10(10C). The exemption can be claimed only once during the lifetime of the employee, so that whether he has exhausted the limit of Rs. 5 lakhs or not, he cannot claim the relief in respect of compensation for voluntary retirement in the second job, if any. This is what is intended clearly by Sec. 10(10C). It only bars relief under Sec. 10(10C) for "any other assessment year".

Sec. 89 treats the amounts received either as arrears or as compensation as the income of the year of receipt and is not claiming for "any other assessment year" as worded in Sec. 10(10C). The rate is worked out with reference to the rate for relevant year or the average of three years. It is for this reason that the earlier assessment is not reopened.

Sec. 89 itself clearly provides that it will not only cover arrears, but also any amount received `by reason' of his having received "in any one financial year, if salary for more than 12 months" and covers even a payment received as profit in lieu of salary. As long as it is assessable as salary income, relief has to be granted as has been mandated by the words "...the assessing officer shall, on an application made to him in this behalf, grant such relief as prescribed".

The present `clarification' has misunderstood Sec. 10(10C) to mean that the exempt income is being distributed to earlier years, where Sec. 89(1) is applied. Apart from misunderstanding of Sec. 89(1), it also misunderstands proviso to Sec. 10(10C), which bars only a claim under Sec. 10(10C) is more than one year effectively barring a second compensation on a second retirement on the legitimate assumption the VRS payment on the first occasion of claim will be assessable in the year of retirement. Hence, the tax deduction made by the banks, which have taken into consideration the correct relief under Sec. 89(1) is in order.

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