Can any body clarify the following?

Facts of a real case:

ABC PRIVATE LIMITED appoints Mr.X as an employee in accounts department and the following is the extract of offer letter goven to Mr.X:-

"if Mr.X want to leave from the organisation he has to give 90 days prior notice period or Mr.x has to pay equivalent salary amount to the company"

(i.e Mr.X gave only 50 days notice then he has to pay an amount equivalent to his 40days salary to the company)


After a period of 2 years Mr. X got a better opportunity in PQR PRIVATE LIMITED. Due to urgent requirement at PQR Pvt Limited Mr.X has given only 12 days notice period in ABC Private Limited and he paid money for the short notice of 78 days to ABC Private Limited.


Queries:

1.What is the Treatment as per Provisions of Income Tax Act for the Amount received by ABC private Limited from Mr.x in the hands of ABC Private Limited?

2.What is the Treatment as per Provisions of Income Tax Act for the Amount Paid by Mr.x  to ABC Private Limited in the hands of Mr. X ?

Thsanks and Regards

CA K Mahesh Babu

Replies (2)

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HI, my opinion is as follows

a) In the hands of the company it is income (miscellaneous) and chargeable to tax.

b) I dont think there will be any effect on taxation in the hands of the employee as no deductions are allowed from salary other than those specified. This kind of expenditure is not specified hence not allowable.

HOW FAR IT SI JUSTIFIABLE FOR EMPLOYEES?

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