In this situation you can send them legal notice and file a writ petition in HC
TDS on leave encashment up to Rs 3 Lacs
I need help to undersatnd the following I was part of a big coopeartion (MNC 1) in india , few months back this MNC1 sold part of these operation globally (including india ) to MNC 2 in January 2019 .(both MNC has saparate legal entities in India ) As a part of settement MNC 1 gave me all my due including leave encashment in my full and final statement written as follows .. Actual Termination Date (Last working Day) - 31-Dec-18 MNC 2 gave an new offer letter to all the employees on 1 Jan 2019 , so our term and condition new to new MNC. But as part of global B2B agreement , both the MNC agreed to keep the Job continuty of employees . So , as part of agreement , MNC 2 agreed to Carry forward the Gratuity of all the emplyees at the start date of Join MNC 1 and this amount was not paid . As i have already left the MNC 1 (india legal entity ) and Joined MNC 2 (india legal entity ), both the companies have generated form 16 for my earning (2 form 16 in this year) As per the income tax law under section 10 AA, i can have tax exeption up to 300000 Rs , but MNC 1 say as we have transfered the gratuity to MNC 2 , they can not extend the TDS exception to me though we have left MNC1. Now when we are contacting MNC 1 not to deduct TDS on Rs. 300000 under sec 10AA , they say , they cant do it , please connect with income tax office for refund please let me know how can we handle this Situation and get our dues
Asked 5 years ago in Taxation
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4 Answers
You can file your return claiming a refund of tds on leave encasement stating facts. Any wrong tds deduction can be got refunded from income tax authorities. If they refused to return you can go for appeal in tribunal. Depending upon the cost benefit ratio you can further move to HC or SC too.
Hi
1) You are right in claiming that MNC1 cannot deduct TDS on Leave encashment.
2) Also transfer of gratuity in toto, has no relevance to Leave Encashment or cannot be treated as continuity of service. It is a short sighted argument.
3) The fact remains that you were relieved from MNC1 and subsequently joined MNC 2. So legally, you have resigned and relieved from MNC1 and hence you are entitled to enjoy the benefits of TDS exemption.
4) Please refer to the highlighted portion of the judgment of High court of Mumbai.
5) You can share the judgment with MNC1 explaining your rationale or with the Income Tax authorities whilst claiming tax refund on TDS on Leave encashment(assuming MNC1 has already deducted TDS)
The Hon’ble Bombay High Court in the case of CIT Vs. D.P. Malhotra, 229 ITR p.394 (Bom.); has dealt with the aforesaid issue in an elaborate manner.
In this case, the assessee was an employee of the Shipping Corporation of India Ltd. During the previous year relevant to the assessment year (AY) 1982-83, the assessee resigned from his service w.e.f. July 29, 1981. In the assessment of his income under the Income-Tax Act, 1961 for the aforesaid AY, the assessee claimed deduction U/S 10 (10AA) of the Act in respect of the amount received by him from his former employer by way of cash equivalent of unutilized earned leave.
This claim of the assessee was rejected by the ITO as he was of the opinion that the assessee having resigned from the employment, the amount received by him by way of leave encashment was not exempt U/S 10 (10AA) of the Act.
On appeal against the order of the ITO, the CIT(A) accepted the claim of the assessee and directed the ITO to grant deduction of the amount received by the assessee by way of cash equivalent of the unutilized earned leave to the extent permissible U/S 10(10AA) of the Act. The order of the CIT (A) was affirmed by the ITAT. Against the order of the ITAT, the I.T. Department filed a reference before the Bombay High Court.
The Hon’ble Bombay High Court dealt with the issue in an elaborate manner and came to the conclusion that the term ‘retirement’ includes ‘resignation’ for the purposes of S.10 (10AA) of the Act. In order to correctly understand the import of the aforesaid judgement, relevant parts of the judgement on pp. 398 and 399 of the Report are reproduced, as follows:
“On a plain reading of clause (10AA) of section 10, it is clear that exemption is available under the said clause only to retiring employees in respect of the amounts received by them by way of encashment of unutilized earned leave standing to their credit at the time of retirement. This clause is not applicable to any such payment received by an employee while in service. The benefit of this clause is available to an employee only on his retirement, whether on superannuation or otherwise. How or why the retirement took place is irrelevant for that purpose – what is significant is ‘retirement’.” ; and
“Thus, both ‘retirement’ and ‘resignation’ result in the conclusion of the service career. In fact resignation from service is also one of the modes of retirement from service. Resignation is a voluntary act of the employee to retire from service. Once an employee resigns, his service stands terminated from the date on which his letter of resignation is accepted by the appropriate authority, unless there is any law or statutory rule governing the conditions of service to the contrary. In other words, on acceptance of resignation, the employee stands retired from service. The word “retirement” has not been used in clause (10AA) in the restricted sense to mean ‘retirement on superannuation’. On the other hand, it is clear from the language of clause (10AA) itself that it has been used in the widest possible terms to mean and include all cases of retirement, whether on superannuation or otherwise. What is relevant is ‘retirement’ – how it took place is immaterial for the purpose of this clause. It is, therefore, clear that if on retirement, even on resignation by the employee, an employee gets by way of leave encashment any amount, clause (10AA) would apply and the assessee will be entitled to the benefit of the said clause to the extent mentioned therein.” .
For reaching the aforesaid conclusion, the Hon’ble High Court has also looked into the various meanings of the word ‘retire’ and according to the Hon’ble High Court, one of the meanings of the word “retire’ is ‘resign’.
Hope this information is Useful.
The company which is winding up has to clear all its accounts and operations in the country hence this may be a part of their winding up process.
You have an option to seek refund hence you may utilise it instead of agitating over this issue because you may not gt any benefit by fighting against this.
However you may liaise with your CA on this and take a decision.
