Leave encashment on termination

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This query is : Resolved

Vikas (Querist)

10 August 2011 If a employee change a job in mid of financial year & in full & final settlement he receive leave encashment & same is also allowed as exemption u/s 10 while issuing form 16 by employer. Employee join new company & while filling return by adding form 16 of two company . he show leave encashment as exemption as per form 16 but assessing officer told leave encashment will be taxable as employee will not retir or nor terminated. pl advice

CMA. Murali

CMA. Murali (Expert)

10 August 2011 Yes, the AO is correct. An Assessee can claim exemption U/S 10(10)AA (ii) only when he is retired from the Organization. Incase of termination or resignation assessee needs to pay tax.

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)

11 August 2011 AO is not correct as the provisions of Section10(10AA)(ii) shall apply and the leave encashment is from the services already rendered and has no connection with the present occupation. Since the assessing officer has not agreed you have to file appeal and in appeal you have to engage a good C.A. who can plead for you.
The following case laws should be considered
CIT Vs. RamRatan Lal Verma -145Taxman 256
CIT Vs. Vijai Pal Singh 144 Taxman 504
CIT Vs. Ashok Kumar Dixit 273 ITR 126
CIT Vs. D. P> Mallhotra 142 CTR 325
CIT VS. R. J. Sahaney 159 ITR 160

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