P.R. Raman, J.
1. Petitioners 1 and 2, respectively, are the Kerala Electricity Officers Federation and the Kerala Electricity Workers Federation, Thiruvananthapuram, represented by their secretaries. Petitioners 3 and 4 are individuals who are officers of the Kerala State Electricity Board. They seek to quash Ext. P2 communication issued by the 4th respondent-CIT, Cochin, to the extent it relates to the computation of income-tax under Section 89 and for a declaration that they are entitled to claim relief under Section 89 of the IT Act apportioning the arrears of salary compulsorily credited to GPF account to various previous years to which it relates and to avail rebate thereon in the computation of tax payable.
2. The relevant assessment year is 1997-98. The pay and allowances of the officers and workers under the Kerala State Electricity Board--the third respondent herein were revised w.e.f. 1st Aug., 1993 on a long-term bilateral agreement entered into in 1995. It is stated that as per the said agreement, all the categories of officers and workers were entitled for cash payment of the revised pay and allowances from 1st Feb., 1995. The revised benefits for the period from 1st Aug., 1993 to 31st Jan., 1995 were to be drawn by them as arrears and the entire amount was to be compulsorily credited to their GPF. It is admitted that the entire arrears form part of total income for the financial year 1996-97, relevant to the asst. yr. 1997-98. As a result, there will be an abnormal increase in the total income of the employees for the relevant assessment year. According to the petitioners, Section 89 of the IT Act provides for reduction of tax payable by them by apportioning the arrears to the years to which it relates so as to minimise their hardship in payment of tax. The arrears ranging from Rs. 5,000 to 50,000 drawn by the employees depending on the posts held by them and the length of their service were compulsorily credited to GPF account in the financial year 1996-97. According to the petitioners, since the arrears related to the financial years 1993-94, 1994-95, 1995-96, they applied to their drawing and disbursing officers for relief under Section 89 of the IT Act. Accordingly, they were allowed to compute the relief by apportioning the arrears of pay received by them to the respective previous years. But they were not allowed to apportion the amount of arrears compulsorily credited to their GPF account to the respective periods to which they relate. Thus, the entire amount credited to GPF account is being treated as their contribution made to the GPF in the year 1996-97. According to the petitioners, great hardship will be caused if they are denied rebate for earlier years on that portion of the arrears credited to GPF which relates to the previous years. On the basis of the communication received from the 4th respondent, the 5th respondent, executive engineer returned claim of certain employees including the 3rd petitioner as per Ext. P1, stating that arrears credited to GPF due to arrears of pay has been seen split in the statement of previous years. The communication dt. 15th March, 1997 issued by the 4th respondent to the chief engineer, Kerala State Electricity Board is produced as Ext. P2. According to the petitioners, the Finance Accounts Department, Southern Zonal Office, LIC of India, has issued a circular on 20th Jan., 1997 to the manager (P &IR;), divisional office, Thiruvananthapuram, to the effect that the Public Relations Officer of the Income-tax Office, Mumbai, has clarified that the investments qualifying for rebate under Section 88 can be apportioned to the respective assessment years in case of those employees who opt for relief under Section 89(1) for payment of salary in arrears. According to the petitioners, Rule 21A(1), (2)(a), (b), (c) and (d) of the IT Rules, 1962, stipulates how the arrears have to be apportioned and to compute the tax for the purpose of relief under Section 89. According to them, such computation as per those rules will be incomplete without the working of eligible rebate under Section 88 of the IT Act. It is contended that when additional salary is apportioned to various previous years, compulsory contribution made to GPF from the additional salary shall also be apportioned to various previous years. According to them, in such computations, the apportionment of additional salary to various previous years to work out the relief admissible to the assessee is only imaginary and when such an imaginary apportionment is made, computation of tax thereon is incomplete without apportioning the arrears of salary credited to GPF account and granting rebate under Section 88. It is submitted that Ext. P2 clarification, if accepted, will cause irreparable monetary loss to the employees of the Board, which is opposed to the intention of the legislature which enacted the provisions of Section 89 of the IT Act.
3. A counter-affidavit is filed for and on behalf of the 4th respondent. The stand taken by the Department is that as per the provisions of Section 89(1) employees have to furnish the details in Form No. 10E with Annexure to the DDOs. When Section 89(1) relief is computed, arrears received are spread over to the previous assessment years. According to the Department, in computing the rebate under Section 88 whether the arrears spread over to the previous assessment years can be considered or not is the question arises for consideration. It is contended that the PF payment made out of the arrears is credited in the provident fund only in the previous year 1994-95, i.e., for the asst. yr. 1995-96 and hence this amount is not liable to be taken into account for rebate when the arrears are spread over to previous assessment years to calculate the relief under Section 89(1). It is contended that Section 88(2) specifically says that the sum referred to in Sub-section (1) shall be any sum paid or deposited in the previous year by the assessee out of his income chargeable to tax, for claiming relief thereunder. Hence, an employee will be eligible to claim the benefit under Section 88(2) only on the sum so paid or deposited in the previous year out of the income chargeable to tax and hence according to the Department, the Board circular issued is in accordance with law and no interference is called for.
4. In order to appreciate the rival submissions, it is necessary to refer to some of the relevant provisions under the IT Act which have a bearing on the question. Chapter VIII of the IT Act deals with rebates and reliefs. Sec. 87 of the IT Act states that in computing the amount of income-tax on the total income of an assessee with which he is chargeable for any assessment year, there shall be allowed from the amount of income-tax (as computed before allowing the deductions under this Chapter), in accordance with and subject to the provisions of Sections 88, 88A, 88B and 88C, the deductions specified in those sections. As far as the contribution to the PF is concerned, it is a rebate allowable under Section 88. As per Section 88 of the IT Act, subject to the provisions of the section, an assessee, being an individual shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to (i) in the case of an individual whose gross total income before giving effect to deductions under Chapter VI-A, is one lakh fifty thousand rupees or less, twenty per cent of the aggregate of the sums referred to in Sub-section (2). We are not concerned with the actual amount allowable by way of reduction and hence it is not necessary to refer to the same. As per Sub-section (2) of Section 88, 'the sums referred to in Sub-section (1) shall be any sums paid or deposited in the previous year by the assessee....'
5. Thus, such sums which are referred to in Sub-section (1) are the sums paid or deposited in the previous year by the assessee. Admittedly, the amount received by way of arrears of salary is deposited only in the previous year relevant to the asst. yr. 1996-97 and not in the previous years relevant to the assessment years earlier thereto, though the arrears of salary may relate back to an earlier period to the previous year relevant to the asst. yr. 1996-97.
6. Before insertion of Section 88, deduction in respect of life insurance premia, contribution to provident fund, etc. were governed by the provisions contained in Section 80C which section was omitted by Finance Act, 1990 w.e.f. 1st April, 1991 with the insertion of Section 88. What was allowed by way of deduction from the total income under Section 80C is now substituted by way of a rebate to be granted under Section 88. Sub-section (2) of Section 80C also contains a similar provision. In the case of an assessee who is an individual, any sums paid in the previous year by the assessee out of his total income chargeable to tax as contribution to any provident fund to which Provident Fund Act applies or as contribution to any PF set up by Central or State Government and notified in this behalf is allowable by way of deduction from the computation of total income at the rate prescribed under Section 80C(1). In other words, both the provisions in Section 88 as well as Section 80C before it was omitted, contain a provision which mandates that before claiming any relief in respect of any amount, the same has to be paid in the previous year relevant to the assessment year. Even according to the assessee, the arrears of salary was actually received in the previous year relevant to the asst. yr. 1996-97 and in the absence of a provision like Section 89, the entire amount so received will be treated as income for the asst. yr. 1996-97 chargeable to tax. Therefore, to what extent relief is provided for would depend upon the provisions contained in Section 89. For the purpose of convenience, it shall be useful to refer to Section 89 which reads as follows :
'89. Relief when salary, etc., is paid in arrears or in advance.--(1) Where an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance or is in receipt, in any one financial year, of salary for more than twelve months or a payment which under the provisions of Clause (3) of Section 17 is a profit in lieu of salary, or is in receipt of a sum in the nature of family pension as defined in the Explanation to Clause (iia) of Section 57, being paid in arrears, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed, the AO shall, on an application made to him. in this behalf, grant such relief as may be prescribed.'
7. To what extent the relief is thus granted depends upon the rules prescribing such reliefs. Rule 21A of the IT Rules, 1962, deals with the relief when salary is paid in arrears or in advance, etc. Rule 21A reads thus :
'21A (1) Where by reason of any portion of an assessee's salary being paid in arrears or in advance or, by reason of any portion of family pension received by an assessee being paid in arrears or, by reason of his having received in any one financial year salary for more than twelve months or a payment which under the provisions of Clause (3) of Section 17 is a profit in lieu of salary, his income is assessed at a rate higher than that at which it would otherwise have been assessed, the relief to be granted under Sub-section (1) of Section 89 shall be--(a) to (e) xxxxx
(2)(a) In a case referred to in Clause (a) of Sub-rule. (1), the tax payable by the assessee on his total income of the previous year in which the salary is received in arrears or in advance or, in which the family pension is received in arrears (such salary or family pension being hereafter in this sub-rule referred to respectively as the additional salary or additional family pension, as the case may be, and such previous year being hereafter in this sub-rule referred to as the relevant previous year) shall be reduced by the amount, if any, by which the tax on the additional salary or additional family pension, calculated in the manner specified in Clause (b), exceeds the tax or the aggregate tax on the additional salary or additional family pension, calculated in the manner specified in Clause (c) or Clause (d), as the case may be.
(b) Tax shall be calculated on the total income of the relevant previous year as reduced by the additional salary or additional family pension, as the case may be, as if the total income so reduced were the total income of the assessee, and the amount by which the tax so calculated falls short of the tax on the total income before such reduction shall, for the purposes of Clause (a), be taken to be the tax on the additional salary or additional family pension, under this clause.
(c) Where the additional salary or additional family pension, as the case may be, relates to only one previous year, tax shall be calculated on the total income of the said previous year as increased by the additional salary or additional family pension, as if the total income so increased were the total income of the assessee, and the amount by which the tax so calculated exceeds the tax payable by the assessee in respect of the total income of the said previous year shall, for the purpose of Clause (a), be taken to be the tax on the additional salary or additional family pension, under this clause.
(d) Where the additional salary or additional family pension, as the case may be, relates to more than one previous year,--
(i) the previous years to which the additional salary or additional family pension relates and the amount relating to each such previous year shall first be ascertained.
(ii) tax shall, then, be calculated on the total income of each such previous year as increased by the amount relating to such previous year ascertained under Sub- clause (i), as if the total income so increased were the total income of that previous year, and the amount by which the aggregate amount of tax in respect of the aforesaid previous years as calculated under Sub- clause (ii) exceeds the aggregate amount of tax payable by the assessee in respect of the total income of the said previous years shall, for the purposes of Clause (a), be taken to be the aggregate tax on the additional salary or additional family pension, under this clause.'
8. As per Rule 21AA where the assessee, being a Government servant or an employee in a company, co-operative society, local authority, university, institution, association or body is entitled to relief under Sub-section (1) of Section 89, he may furnish to the person responsible for making the payment referred to in Sub- section (1) of Section 192, the particulars specified in Form No. IDE. Annex. I to Form No. 10E contains a table which is also extracted hereunder:
Table-A
l 2 3 4 5 6 7
Previous Total Salary Total income Tax on Tax on Difference in
year(s) income of received in (as increased total total tax [amount
the arrears or by salary income income [as under column
relevant advance received in (as per per amount(6)
previous relating to arrears or column column minus under
year the relevant advance) of (2)] (4)1 column (5)]
previous year the relevant
as mentioned previous year
in column (1) mentioned in
column (1)
[Add
columns (2)
and (3)]
9. As per Item 2 of Form No. 10E, detailed particulars of payment are to be given in Annexs. I, II, IIA, III or IV, as the case may be. Annexure I is extracted hereunder:
Arrears or advance salary
1. Total income (excluding salary received in arrears or advance).
2. Salary received in arrears or advance.
3. Total income (as increased by salary received in arrears or advance) (Add item 1 and item 2).
4. Tax on total income (as per item 3). 5. Tax on total income (as per item 1)
6. Tax on salary received in arrears or advance (difference of item 4 and item 5).
7. Tax computed in accordance with Table 'A' [brought from column 7 of Table 'A'].
8. Relief under Section 89(1) [Indicate the difference between the amounts mentioned against items 6 and 7].
The manner of computation of tax as per item 7 of the Annexure is to be made in accordance with Table 'A'. Table 'A' is as given above.
10. On a combined reading of Rule 21A, when the salary is received in arrears, the relief to be granted under Sub-section (1) of Section 89 shall be in accordance with the provisions of Sub-rule (2) of Rule 21A. Sub-rule (2)(a) provides the manner of computation. As per the said rule, the tax payable by the assessee on his total income of the previous year in which the salary is received in arrears or advance (which is referred to as additional salary received and the previous year is referred to as the relevant previous year) has to be reduced by the amount, if any, by which the tax on additional salary calculated in the manner specified in Clause (b) exceeds tax or aggregate tax on the additional salary calculated in the mariner specified in Clause (c) or Clause (d), as the case may be. As per Sub-rule (2)(b), the tax has to be calculated on the total income of the relevant previous year as reduced by the additional salary as if the total income so reduced were the total income of the assessee and the amount by which the tax so calculated falls short of the tax on the total income before such reduction shall, for the purposes of Clause (a), be taken to be the tax on the additional salary under this clause. Sub-rule (2)(c) provides that if the additional salary relates to only one previous year, tax shall be calculated on the total income of the said previous year as increased by the additional salary, as if the total income so increased were the total income of the assessee, and the amount by which the tax so calculated exceeds the tax payable by the assessee in respect of the total income of the said previous year shall, for the purpose of Clause (a), be taken to be the tax on the additional salary.
11. AS per Sub-rule (2)(d) which is relevant in the present case, where the additional salary relates to more than one previous year, then the previous years to which the additional salary relates and the amount relating to each such previous year shall first be ascertained. Tax shall be then calculated on the total income of each such previous year as increased by the amount relating to such previous year ascertained under Sub- clause (i), as if the total income so increased . were the total income of that previous year, and the amount by which the aggregate amount of tax in respect of the aforesaid previous years as calculated under Sub- clause (ii) exceeds the aggregate amount of tax payable by the assessee in respect of the total income of the said previous years shall, for the purpose of Clause (a) be taken to be the aggregate tax on the additional salary.
12. It is thus seen that the additional salary relating to each such previous year shall be ascertained and tax in respect of such previous years has to be calculated by adding the additional salary as if the total income so increased were the total income of that previous year. This is to be repeated in the case of each such year to which the salary is spread over. The difference in the tax amount for all these years put together is thus obtained and the excess over the same is given by way of rebate under Clause (a) of Sub-rule (2). The rule is totally silent regarding as to whether the additional salary if credited to the GPF account should also be apportioned in the same manner and the tax recomputed in respect of each such previous assessment years. What is provided for is only the recalculation of the liability of the previous years to which the salary is spread over for the limited purpose of calculating the relief to which the assessee is entitled to as prescribed under rules. In other words, the rule does not warrant a reassessment or recompilation of the income of the previous years. It does not permit of a reopening of an assessment already made but to calculate the rebate allowable under Section 89(1) as prescribed under rule by fiction of law. The additional salary pertaining to the relevant previous year as though it is received in that year is added for the limited purpose of calculating the amount of tax. In other words, the relief under Section 89(1) is only a partial relief to the extent provided for in the rules prescribed. Section 89(1) being a provision giving certain reliefs as prescribed, such relief has necessarily (to) be computed under the rules. If the argument of the learned Counsel for the assessee is accepted, it would amount to recomputation of total income of each year. Admittedly, when the PF amount is deposited and paid only in the previous year relevant to the assessment year in question, an assessee cannot by fiction assume that the portion of the amount is deemed to have been deposited in the previous year to which the spread over is made and then to claim the relief under Section 88 to work out the tax liability in each such previous years. This will amount to redrafting of the entire rule which is impermissible. When relief under Section 88 itself is confined to the amount deposited or paid in the previous year, there is no warrant for applying any fiction in the absence of any express provision contained in the rule and to spread portion of the PF amount in proportion to the additional salary and then to make fictional deductions and to treat that portion as having been paid or deposited for claiming the benefit under Section 88. This will be contrary to the language of Section 88 itself. The legislature has not intended to confer such benefits on the assessee. The rules neither expressly nor impliedly provide for any such relief. The learned Counsel appearing for the Department placed reliance on the decision of this Court in CIT v. Abraham George : [2000]242ITR171(Ker) wherein this Court considered the scope of Section 80C. That was a case dealing with the reliefs to be granted under Section 80C of the IT Act, at the relevant point of time. Referring to the expression used in Section 80C 'any sums paid in the previous year by the assessee out of his income chargeable to tax', it was held that obviously the deduction in terms of Section 80C can be granted only if the payment is made out of his 'income chargeable to tax'. Whether it should be chargeable or not does not arise for consideration in the present case. However, the fact remains that in order to claim deduction under Section 80C, payment has to be made in the previous year relevant to the assessment year.
13. learned Counsel for the assessee on the other hand, contended that while imagining certain state of affairs as real, the consequential effect also is to be considered. Reference was made to the decision in ....... (sic). We are not satisfied that the said decision has any relevance in the context of this case. Here, but for the relief granted under Section 89(1) the whole amount will be the income of the previous year relevant to the assessment year. Spread over of the arrears is allowed by way of relief only. But. the extent of relief granted under Section 89(1) itself is as prescribed by rules. Hence, only what is prescribed by rules could be the benefit that is conferred on the assessee. It is only for the limited purpose of finding out the extent of relief that the recalculation of tax liability of the previous year to which the salary is spread over is made.
In the result, we find no merit in the contention raised. Accordingly, the original petition is dismissed.