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Workmen's Compensation

First!!!! (student) (162 Points)

11 January 2010

An employee of a Company has died. Now his wife is eligible for a Compensation under Workmens Compensation Act. Are there any benefits for the Employer and his wife under the Income Tax Act?

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9 Replies

Amir (Learner) (4016 Points)
Replied 11 January 2010

Compensation received by widow will be exempt u/s 56(2) -

in contemplation of death of the payer or donor, as the case may be; or

Further, Employer can claim the amount of compensation as deduction of expense..

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First!!!! (student) (162 Points)
Replied 11 January 2010

Amir (Learner) (4016 Points)
Replied 11 January 2010

Sec 37(1) of the Income Tax Act, 1961

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First!!!! (student) (162 Points)
Replied 11 January 2010

that doesnot say anything about Workmens Compensation Act any where!!. . .

Amir (Learner) (4016 Points)
Replied 11 January 2010

Brother,

All business expenses of revenue nature which r not covered by sec 30 to 36 are allowed under Sec 37(1)..

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Amir (Learner) (4016 Points)
Replied 11 January 2010

Brother,

But the amount of Compensation will be taxable in the hands of deceased employee as "Salary"

Scope of the expression ‘termination of employment’ -

The word ‘any’ in the phrase ‘any compensation’ occurring in section 17(3)(i) indicates both the quantum and the kind of compensation. It may be paid under a termination clause in the contract of service or it may be paid at the time of unexpected break of employment. The motive for the payment of compensation is immaterial. It may be paid in respect of loss of future remuneration or deprival of future promotion, thereby affecting the employee adversely. The payment of compensation may be voluntary or contractual. It will be taxable irrespective of the question whether the employer is liable to pay compensation in law or not. In sum and substance, the payment of compensation may be made by the employer at or in connection with the termination of employment. Even if such payment has no connection with the termination of employment, it would fall to be taxed as ‘profits in lieu of salary’. The phrase ‘termination of employment’ would cover a termination in the natural course of events, the terms of employment having been completed and period of retirement having been arrived. It would also apply to premature termination of employment and termination by death or voluntary resignation. The termination of employment need not be at the instance of the employer only. It would cover the cases of voluntary retirement of an employee under a scheme framed by the employer - CIT v. P. Surendra Prabhu [2005] 149 Taxman 82/279 ITR 402 (Ker.).

First!!!! (student) (162 Points)
Replied 12 January 2010

Compensation received by widow will be exempt u/s 56(2)
And then u say it is taxable. . .U are contradicting ur own statement

Amir (Learner) (4016 Points)
Replied 12 January 2010

Dear

I am sorry for my yesterday's statement, It was INCORRECT...

I said that the sum would be exempt in the hands of widow u/s 56(2) but when i read it carefully the sum is not exempt in the hands of widow rather it is not taxable in her hands, the said compensation is taxable in the hands of deceased employee.

I hope u r getting what i mean...

To clarify further, Sec 56(2) says that sum received in contemplation of death of the "PAYER"

In this case payer is the employer therefor it cannot be said as the sum received on the death of the payer...

Nevertheless the point that Employer will get the deductioni/s 37(1) was rite...

Taxable in the hands of deceased employee as per judjement stated above