Clarifications on taxabliity of salary

The common people who earns his livehood by the way of employment requires to pay tax on his earning, hence it is very important to them to understand the tax implications on salary by given below case laws:

TAXABLE

ESOP: Conversion of warrants into equity shares under scheme ,benefit extended to assessee by virtue of employment hence difference between price of shares at time of exercise of option and predetermined price is liable to tax as perquisite u/s. 17(2)(iiia). Refer, Tripti Sharma (Smt.), (2010) 1 ITR 471.

Club: Club membership expenses should considered as perquisites. Refer, CIT v Wipro Systems, 325 ITR 234.

Tips: Payment of banquet and restaurant tips to the employees of assessee in its capacity as employer constitutes salary with in the meaning of section 15 read with section 17 (3) . Refer, CIT v ITC Ltd, 59 DTR 312/ 243 CTR 114 (Delhi) (High Court).

Repairs of House Property: Expenditure on repair of residential accommodation occupied by employee is perquisite Rule 3. Scott R. Bayman v. CIT, 76 DTR 113 (Delhi)(High Court).

NOT TAXALBE

Interest free Rental deposit:  Interest free security deposit given for employee residence on rent is  not a perquisite. Refer, CIT V Vijay Singh, 323 ITR 446.  Same also confirmed in the case of  CIT v. Shankar Krishnan, 207 Taxman 233 (Bom) (High Court).

Uniform Allowance: Attire Allowance is exempt. Refer, CIT v Micro Land Limited, 323 ITR 670 Kar.

Restrictive Payment: 

In the case of CIT vs. A. K. Khosla, 39 DTR 82 (Mad.), it was held that Non compete fee received by assessee from the employer company on his retirement for not to take up any employment is a capital receipt and it can not come under the term “profits in lieu of salary”. Section 17(3)(iii) inserted by Finance Act 2001, w.e.f. 1st April 2002, is prospective and applicable only to Asst. Year 2002-03 onwards.

  

Voluntary Retirement: It was held that amounts up to five lakhs of rupees received on voluntary retirement entitled to exemption u/s. 10(10C). Amount in excess of five lakhs of rupees was entitled to relief u/s. 89. Refer, Koodathil Kallyatan Ambujakshan, (2009) 309 ITR 113.

Transport: Pick-up and drop facility to employees between the specified points is not a perquisite. Refer, WNS Global Services (P) Ltd., 33 SOT 445.

Tax on perquisite: Tax borne by employer on perqusite of Employees would constitute Non Monetary Benefits and as such same is exempted u/s 10 (10CC). Refer, Tranocean Discover LLC v ACIT, 6 taxmann.com 18 - Delhi – ITAT.  Same had also confirmed in the case of Mitsubishi Corporation v CIT, 200 Taxman 372 and Isaco Sakai v. Jt. CIT, 49 SOT 154 (Delhi)(Trib.).  

School Fees: Assessee school was providing free educational facilities to wards of teachers / staff members and cost of education was less than Rs 1000 per month per child, assessee was entitled to benefit of proviso to rule (3) ( 5) and consequently , could not be treated as assessee in default. Refer, CIT v Delhi Public School, 203 Taxman 81/ 63 DTR 325 (Delhi) (High Court).

  

Key-man Insurance: Surrender value cannot be taxed as profit in lieu of salary.( 2(24(xi), 56 ). Refer, CIT v.Rjan Nanda, 249 CTR 141/69 DTR 250 (Delhi) (High Court).

  

 CLARIFICATIONS

LTA: There is no need to verify LTA details. Refer, CIT V Larsen & Toubro Limited, 313 ITR 1 SC.

Value of Accommodation: Salary for purpose of valuation of perquisite value of accommodation is based on Annual salary from one or two or more employers. Refer, Pratim B Mekerjea V ACIT, ITA Nos. 2628  MUM / 2005 dated 17-2-2010.

Discounted Loan: Where loan was granted by an employer at rate of interest less than lending rate of State Bank of India, such a loan is to be regarded as a concessional loan and consequently, value of perquisite thereon is to be calculated. Refer, All India Punjab National Bank Officer’s Association vs. Chairman-cum-Managing Director, Punjab, 190 Taxman 221 (MP).

MP Remuneration: Remunerations received by the MLAs and MPs cannot be taxed under the head income from salary but can only be taxed under the head income from other sources. Refer, M. Venkata Subbaiah vs. ITO, 47 DTR 403 (Visakha)(Trib.).

Courtesy taxbymanish@yahoo.com at http://taxbymanish.blogspot.in.