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T. Banusekar

IS the maximum rebate available for assessment year 2003-04 Rs 14,000, that is, 20 per cent of Rs 70,000 for all individuals regardless of the total income?

Reply

There is no difference on the percentage of rebate available under Section 88 for assessment years 2003-04 and 2004-05. The percentage of rebate will depend on the gross total income of the reader.

Query

The rebate under Section 88 is now available in respect of education expenses of the children of an individual. What documentary evidence is required for such rebate to be taken?

R. Sreekanth

Reply

Tuition fees (excluding development fees, donations or other payments of similar nature) paid for full time education of any two children of an individual. This payment of tuition fee should be to a university, college, school or other educational institutions situated within India. The amount that will qualify for rebate should not exceed Rs 12,000 per child. For this purpose the bill or receipt giving particulars of the payment issued by the university, college, school or other educational institutions situated within India should be maintained and along with the return by the assessee.

Query

I was working for a public sector undertaking. I opted for a voluntary retirement scheme (VRS) in January 2002 and received a sum of Rs.6.50 lakh at the time of retirement under this scheme. I have also received a further sum of Rs 6 lakh in January 2003 as ex-gratia. Can I claim relief under Section 89 in respect of the sum of Rs 6 lakh that I have received in January 2003? If so in which year is the relief available?

P. Thamburaj

Reply

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. Rule 21A of the Income-Tax Rules which deals with the computation of relief provides for the relief being available among others in a case where the payment is in the nature of compensation received by the assessee from his employer or former employer at or in connection with the termination of his employment after continuous service for not less than three years and where the unexpired portion of his term of employment is also not less than three years. It can therefore be concluded that if the ex-gratia of Rs 6 lakh received in January 2003 is in the nature of compensation on termination of employment, the relief under Section 89(1) will be available. It may be mentioned here that the sum of Rs 6 lakh would be chargeable under the head salaries and that income under this head is chargeable when it becomes due or when it is received whichever is earlier.

Therefore, in the reader's case, if the sum of Rs 6 lakh received in January 2003 has become due even in an earlier year that is the year in which he opted for the VRS, the same would be chargeable in that year, that is, in the previous year 2001-02 (assessment year 2002-03). In this case the relief would also be available under Section 89(1) in the assessment year 2002-03.

If, however, the said sum of Rs 6 lakh became due only in the previous year 2002-03 (assessment year 2003-04), the same would be chargeable to tax in the assessment year 2003-04 and the relief would also be available in assessment year 2003-04. One controversy that seems to have arisen in the recent past is on whether sums received under a VRS will qualify for the exemption under Section 10(10C) and whether the excess over the sum exempt will qualify for relief under Section 89(1). 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 relief under Section 89(1) based on the CBDT's letter dated April 23, 2001 in F. No.174/5/2001/ITA, which is reproduced below:

"Amount upto Rs 5 lakh received under VRS is exempt as per the provisions of Section 10(10C)(viii) and after allowing this exemption, the balance amount exceeding Rs 5 lakh is not eligible for relief under Section 89(1) as per the proviso provided under Section 10(10C)(viii) which says `..., no exemption thereunder shall be allowed to him in relation to any other assessment year'. Thus, distributing the amount of compensation in more than one assessment year is not permissible as per the existing provisions."

The relief under Section 89(1) read with Rule 21A(1)(c) is available in respect of compensation received in connection with termination of employment after a continuous service of more than three years and where the unexpired portion of the term of employment is three years or more. The point in question is whether the second proviso to Section 10(10C) which reads as follows will disentitle an assessee to the relief under Section 89(1):

"Provided further that where an exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year". 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 P.Arunachalam [2000] 241 ITR 827 (Mad)

CIT v M.Raman [2000] 245 ITR 856 (Mad)

CIT v J.Visalakshi [1994] 206 ITR 531 (Mad)

It can, therefore, be said that sums received under a VRS will qualify for exemption under Section 10(10C) and that the excess over the sum exempt will also qualify for relief under Section 89(1).

(Business Line invites queries on personal taxation issues to this column. Queries may be sent to `Tax Talk', Kasturi Buildings, 859, Anna Salai, Chennai-600002, or by e-mail to taxtalk@thehindu.co.in (Readers are requested to mention `Tax talk' in the subject line of their e-mails.)

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