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T. Banusekar

SECTION 88 has been amended by the Finance Act, 2003 to provide for a rebate in respect of tuition fee for education of the individual, the spouse or child of such individual or in case of HUF for any member of the family.

I have taken a loan from the bank to pay the tuition fee of my son for his higher education. Such higher education is paid to an education institution in India directly by the bank through a demand draft.

Am I eligible to claim rebate under Section 88 for such tuition fee, which is paid by the bank directly?

P. S. Sridhar

Reply

Sub section (3) has been inserted to Section 88 by the Finance Act 2002 with effect from the assessment year 2003-04 to provide that rebate provided the sums paid or deposited does not exceed the total income of the assessee chargeable to tax during the relevant previous year.

In the reader's case if the loan amount, which represents the fee to the educational institution along with the other payments or deposits qualifying for rebate under Section 88 does not exceed the total income of the reader, the rebate under Section 88 will be available in respect of such payment. Prior to this amendment a very restricted view that the rebate will not be available if a loan is taken was being canvassed. The amendment referred to above has set this controversy at rest. The reader can, therefore, claim the rebate in the assessment year 2004-05 provided he is able to satisfy the condition relating to the aggregate of payments/deposits not exceeding his total income for that assessment year.

The fact that he has taken a loan will not come in the way of claiming the rebate.

Query

I have retired under a voluntary retirement scheme. I have received retirement benefits to the extent of Rs 12 lakh.

I am also eligible for a monthly pension of Rs11,000. Am I eligible to get the benefit of both the exemption under Section 10(10C) and also the relief under Section 89(1)?

Y. Prasad

Reply

Section 10(10C) entitles an individual employee to an exemption in respect of sums received on voluntary retirement or termination provided the conditions stipulated by the section are satisfied.

Section 89(1) entitles an assessee to relief if he has received a salary in arrear or in advance or a salary in one financial year for a period exceeding 12 months or a family pension in arrears.

This relief is meant to mitigate the hardship that may be caused due to such amounts received being taxed at a higher rate than at which he would have otherwise been assessed.

The issue for consideration is whether both the relief under Section 89(1) and the exemption under Section 10(10C) can be claimed in respect of sums received under a VRS.

It is understood that Assessing Officers are taking the view that sums in excess of what is exempt under Section 10(10C) will not qualify for the rebate under Section 89(1) based on the CBDT's letter dated 23.04.2001 in F. No.174/5/2001/ITA. However, it may be stated that the columnist has not verified the authenticity of the above letter. At any rate it is felt that such a clarification (if one exists) is not the correct position in law. The point in question is whether the second proviso to section 10(10C) will disentitle an assessee to the relief u/s.89(1). What is denied under the second proviso to section 10(10C) is only an "exemption" in any other year.

What is to be noted is that neither is Section 89(1) an "exemption" but a relief from tax nor is it claimed in any "other assessment year". The objective of the second proviso to Section 10(10C) is to disentitle an assessee from claiming an exemption more than once under the said section.

Reference in this connection may also be made to the following decisions of the High Court where the Court has held that relief under Section 89(1) will be available in respect of sums received under a VRS:

CIT v M.Raman 245 ITR 856 (Mad)

CIT v J.Visalakshi 206 ITR 531 (Mad)

If it is true that the Board has issued any instruction or circular contrary to this view that a relief under Section 89(1) would be available in respect of the amount in excess of the amount exempt under Section 10(10C), it is submitted that the same needs to be withdrawn as it does not appear that such a view is tenable in law.

It may also be noted that only circulars and instructions of the Board are binding on subordinate authorities and not letters of the Board.

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