Salary recovered for notice period not taxable u/s 16 – ITAT

Salary recovered for notice period not taxable salary us 16 as per agreement with the employers when actually assessee had received less salary – ITAT

ABCAUS Case Law Citation:
ABCAUS 1219 (2017) (04) ITAT

The Grievance:
The appellant assessee was aggrieved by the order of the Commissioner of Income Tax (Appeals) in confirming the order of the Assessing Officer (AO) holding that the amount received as Notice Pay is liable to be taxed under the head “Salary” u/s 16 of the Income tax Act, 1961 (‘the Act’). 

Assessment Year : 2010-11
Date/Month of Pronouncement: April, 2017

Brief Facts of the Case:
The assessee is an individual, deriving income from salary, house property and other sources. The case of the assessee was reopened by issuing notice under Section 148 of the Act the ground that the assessee had not disclosed the salary received from his previous two employers. During the course of reassessment proceedings, the Assessing Officer observed that the assessee had worked with three employer out of which the assessee had only shown the salary income received from one employer after claiming deduction under Chapter VI-A of the Act. Since the assessee was failed to disclose the salary income from other two employers, the undisclosed salary income were added to the total income of the assessee vide order passed under Section 143(3) r.w. 147 of the Act.

Aggrieved by the order of the ld. Assessing Officer, the assessee preferred appeal before the CIT(A) who sustained the additions made by the Assessing Officer.

Observations made by the Tribunal:
The Tribunal observed that find that during the year under consideration the assessee served with first employer and the second employer for few days/months  and out of the salary received, major sum was recovered as notice pay as per agreement with the employers. Therefore, total notice pay was claimed in the return of income as deduction which was recovered from the salary by assessee’s previous employers.

The ITAT observed that the employers had 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.

According to the Tribunal this was a case of recovery of the salary which is already made to the assessee for which Section 16 of the Act could not be referred. The assessee had actually received the salary from his previous employers after deducting the notice period as per the job agreement with them. Therefore, the actual salary received by the assessee was only taxable.

Held:
ITAT allowed this ground of appeal of the assessee.