The Income Tax Appellate Tribunal, Agra, has clarified a long-standing ambiguity in the application of Section 89 of the Income Tax Act, 1961, holding that relief for arrears of employer contributions to a superannuation fund is available even when such contributions are classified as perquisites under Section 17(2)(vii). This decision resolves conflicting interpretations by lower authorities and affirms that the inclusion of perquisites within the definition of salary under Section 17(1)(iv) makes them eligible for relief under Section 89.
Background & Facts
The Dispute
The appellant, Shri Sunil Kumar Srivastava, a managerial employee of GAIL (India) Ltd., received arrears of Rs. 23,48,445/- in the financial year 2013-14, corresponding to assessment year 2014-15. These arrears represented employer contributions to a Defined Contribution Scheme, covering the period from 01.01.2007 to 31.03.2013. The employer had treated this amount as a perquisite under Section 17(2)(vii) of the Income Tax Act, which came into effect w.e.f. 01.04.2010. The appellant claimed relief under Section 89(1) amounting to Rs. 5,25,620/-, which was disallowed by the Assessing Officer and subsequently confirmed by the Commissioner of Income Tax (Appeals).
Key Facts
- The appellant was employed by GAIL (India) Ltd., a Central Public Sector Enterprise, since 01.06.2005.
- Employer contributions to the superannuation fund were exempt from tax prior to A.Y. 2010-11.
- From A.Y. 2010-11 onwards, employer contributions exceeding Rs. 1,00,000/- became taxable as perquisites under Section 17(2)(vii).
- The arrears received in F.Y. 2013-14 included contributions for A.Y. 2007-08 (Rs. 14,36,607/-), A.Y. 2008-09 (Rs. 1,23,836/-), and A.Y. 2009-10 (Rs. 1,40,594/-), all of which were tax-exempt in their respective years.
- The appellant filed Form 10E claiming relief under Section 89, which was accepted by the employer in Form 16.
- The Assessing Officer disallowed the relief on the ground that perquisites are not eligible for Section 89 relief.
- The CIT(A) upheld the disallowance, relying on the distinction between salary and perquisite.
Procedural History
- 01.07.2014: Assessee filed return declaring total income of Rs. 54,32,290/- and claimed relief of Rs. 5,25,620/- under Section 89.
- 2014-15: Notice under Section 143(2) and Section 142(1) issued; assessee submitted Form 10E and supporting documents.
- 26.12.2017: CIT(A) order passed dismissing appeal and disallowing relief.
- 16.07.2018: ITAT Agra Bench delivered judgment in Rajesh Kumar v. ACIT (ITA No. 198/Agr/2018), allowing similar relief.
- 20.05.2026: Hearing held before ITAT Agra (DB) Bench.
- 05.06.2026: Judgment pronounced.
The Parties' Positions
For the Appellant
- Argued that Section 17(1)(iv) defines "salary" as including perquisites, thereby making perquisites eligible for Section 89 relief.
- Contended that the relief claimed pertains to arrears of amounts that were tax-exempt in prior years, and the tax burden is higher due to lump-sum receipt.
- Relied on Rajesh Kumar v. ACIT (2018) 53 CCH 666 (Agra-Trib) as binding precedent.
- Emphasized that Rule 21A(1)(a) read with Rule 21A(2) applies to salary received in arrears, and since perquisites are part of salary, they are covered.
- Stated that GAIL’s internal circular cannot override statutory provisions.
For the Respondent
- Maintained that Section 89 applies only to salary, profit in lieu of salary, or family pension, and not to perquisites.
- Relied on Section 17(2)(vii) to argue that employer’s superannuation contribution is a perquisite, not salary.
- Asserted that Form 10E does not contemplate relief for perquisites.
- Cited Rule 21A(1)(e) and Rule 21A(6) as excluding such claims.
- Argued that the employer’s inclusion of relief in Form 16 is not binding on the tax authorities.
Relief Sought
The appellant sought:
- Allowance of relief under Section 89(1) amounting to Rs. 5,25,620/-.
- Reversal of the CIT(A) order dated 26.12.2017.
- Direction to the Assessing Officer to grant the relief and adjust the tax liability accordingly.
The Legal Issue
Is relief under Section 89(1) of the Income Tax Act available on arrears of employer contributions to an approved superannuation fund, even when such contributions are classified as perquisites under Section 17(2)(vii)?
Arguments Presented
For the Appellant
The appellant relied on the definition of "salary" under Section 17(1)(iv), which explicitly includes perquisites. He argued that Section 89 applies to any sum received in arrears under the head "salary", and since perquisites are part of salary, they are covered. He cited Rajesh Kumar v. ACIT as directly on point, where the same tribunal had allowed relief on identical facts. He further contended that Rule 21A(1)(a) and Rule 21A(2) govern relief for salary received in arrears, and the definition of salary in Rule 21A incorporates Section 17(1). He emphasized that the GAIL circular, being an internal document, cannot override statutory law.
For the Respondent
The Revenue contended that Section 89 is limited to "salary" as distinct from "perquisite" under Section 17. It argued that the legislative intent behind Section 17(2)(vii) was to tax employer contributions as perquisites, and the legislature did not intend to extend Section 89 relief to such amounts. It relied on the absence of any provision in Form 10E for perquisites and on Rule 21A(1)(e), which excludes non-salary arrears. It maintained that the employer’s inclusion of relief in Form 16 is merely an administrative convenience and not determinative of tax liability.
The Court's Analysis
The Tribunal undertook a detailed statutory interpretation of Section 17, Section 89, and Rule 21A of the Income Tax Rules. It observed that Section 17(1)(iv) unambiguously states that "salary" includes perquisites. This inclusion is not merely for accounting purposes but for the entire computation of income under the head "salary". The Tribunal held that Section 89 is triggered whenever any sum falling under the head "salary" is received in arrears, regardless of whether it is classified as wages, bonus, or perquisite.
"Section 17(1)(iv) says that 'salary' includes, inter alia, perquisites. Relief u/s 89 is available in respect of salary and so, it is, by virtue of section 17(1)(iv), as a natural corollary thereof, available qua perquisites."
The Tribunal rejected the Revenue’s reliance on Rule 21A(1)(e) and Rule 21A(6), noting that these provisions apply only to payments not in the nature of salary paid in arrears. In contrast, Rule 21A(1)(a) read with Rule 21A(2) explicitly covers salary received in arrears, and since perquisites are part of salary, they fall squarely within this provision.
The Tribunal further held that Form 10E, while requiring employee verification, does not limit the scope of relief to only those items explicitly listed in its columns. The form is a mechanism for furnishing particulars, not a statutory restriction on eligibility. The GAIL circular, being an internal administrative document, was held to be irrelevant to the statutory interpretation of the Income Tax Act.
The Tribunal concluded that the CIT(A) erred in treating "perquisite" and "salary" as mutually exclusive for the purpose of Section 89 relief. The legislative framework, when read harmoniously, permits relief where the underlying amount, even if classified as a perquisite, forms part of the salary head and is received in arrears.
The Verdict
The appeal of the assessee is allowed. The order of the CIT(A) dated 26.12.2017 is set aside. The Assessing Officer is directed to allow the relief under Section 89(1) of the Income Tax Act amounting to Rs. 5,25,620/-, and to recalculate the tax liability for A.Y. 2014-15 accordingly. The relief shall be granted forthwith without requiring any fresh application from the assessee.
What This Means For Similar Cases
Relief Under Section 89 Extends to Perquisites
- Practitioners must now argue that any arrears falling under the head "salary" - including employer contributions to superannuation funds, rent-free accommodation, or other perquisites - are eligible for Section 89 relief.
- The key test is whether the amount is included in the computation of salary under Section 17(1), not whether it is labeled as "salary" or "perquisite".
- Form 16 and Form 10E are procedural tools; their format does not override statutory entitlement.
Employer’s Internal Circulars Are Not Binding
- Internal policy documents from PSUs or private employers cannot override the Income Tax Act.
- Tax authorities must apply statutory provisions, not organizational guidelines, even if those guidelines are consistent with tax treatment.
- Practitioners should cite Rajesh Kumar and this judgment to counter Revenue arguments based on employer circulars.
Rule 21A(1)(a) Is the Governing Provision
- When claiming relief on arrears, practitioners must cite Rule 21A(1)(a) and Rule 21A(2), not Rule 21A(1)(e).
- The distinction between Rule 21A(1)(a) and Rule 21A(1)(e) is critical: the former applies to salary in arrears; the latter to non-salary payments.
- Form 10E must be filed correctly, but its omission does not defeat the claim if the underlying amount qualifies under Section 89 and Section 17(1).
