February 2020

Section 10(13A), Rule 2(h) of Fourth Schedule – For the purpose of computing qualifying amount u/s 10(13A) of the Act, the amount received as performance bonus does not assume character of salary

Jagdish T.Punjabi
Chartered Accountant | Devendra Jain
Advocate

17. [2020] 113 taxmann.com 295 (Trib.)(Kol.) Sudip Rungta vs. DCIT ITA No. 2370/Kol/2017 A.Y.: 2011-12 Date of order: 10th January, 2020

 

Section 10(13A), Rule 2(h) of Fourth Schedule – For the purpose of computing qualifying amount u/s 10(13A) of the Act, the amount received as performance bonus does not assume character of salary

 

FACTS

The assessee was a salaried employee who, for the year under consideration, filed his return of income declaring total income of Rs.  2,61,97,296. During the year under consideration, he had received a basic salary of Rs. 30,00,000 and performance bonus of Rs. 1,50,00,000. In the return he had claimed exemption of HRA of Rs. 8,47,742. The AO called for details of the rent paid and calculation of the amount of exemption. In response, the assessee submitted that the total rent paid during the year was Rs. 8,20,000 and for the purposes of computing exemption, only the basic salary had been regarded as ‘salary’.

 

The AO held that 'performance bonus' is covered under the term 'salary' as per the meaning assigned to the definition of 'salary' for the purpose of calculating exemption u/s 10(13A). 'Performance bonus' cannot be comprehended as an allowance or perquisite as defined in Rule 2(h) of the Fourth Schedule to be excluded from the purview of 'salary'. Thus, the assessee's total salary for computation of exemption u/s 10(13A) for the year under assessment comes to Rs. 30,00,000 plus Rs. 1,50,00,000, which totals Rs. 1,80,00,000; and 10% of this comes to Rs. 18,00,000. Since the assessee has paid rent of Rs. 8,20,000 which is much less than the amount of Rs. 18,00,000, the assessee is not entitled to any benefit u/s 10(13A) of the Act. Thus, the AO denied the benefit u/s 10(13A) of the Act.

 

Aggrieved, the assessee preferred an appeal to the CIT(A), who only confirmed the action of the AO.

 

The assessee then preferred an appeal to the

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