BISWAS MANIK,VADODARA vs. THE ITO, WARD-4(2)(4), VADODARA

The brief facts of the case are that for Assessment Year 2018-19, the assessee submitted before the Assessing Officer that a sum of ₹20,00,000/- paid by the employer to LIC under a Voluntary Retirement Scheme (VRS) to purchase an annuity policy on behalf of the assessee was exempt from tax. The assessee further submitted that he had already included the annuity instalments (with respect to this policy) of ₹1,40,727/- received from LIC as income in the return, which were not reflected in Form 16 or 26AS. The assessee submitted that the employer made errors in computing the taxable salary and failed to apply applicable exemptions, leading to inflated figures in Form 16. The assessee placed reliance on judicial precedents to support his claim that tax paid by the employer on behalf of the employee is a non-monetary perquisite and hence exempt. To verify the claims, the Assessing Officer (AO) issued notice under Section 133(6) of the Act to the employer, who clarified that the company paid ₹20,00,000/- to LIC on behalf of the assessee and grossed it up with tax of ₹5,87,515/-, totalling ₹25,87,515/- which was included as taxable salary in Form 16 issued to the assessee. Based on this, the AO held that the amount Biswas Manik vs. ITO Asst.Year –2018-19 - 3– paid to LIC formed part of salary under Section 17(2)(v) of the Act, being a perquisite in the nature of a contract for an annuity. However, exemption under Section 10(10CC) was allowed only to the extent of ₹5,87,515/-, which was the actual tax borne by the employer. Accordingly, the AO recomputed the assessee’s salary income.

In appeal, CIT(Appeals) dismissed the appeal of the assessee with the following observations:

The assessee is in appeal before us against the decision of CIT(Appeals) confirming the additions made by the Assessing Officer. Before us, none appeared on behalf of the assessee. From the case records, we observe that the case of the assessee is that the sum of Rs. 20 lakhs paid by the employer to LIC to purchase an annuity on his behalf cannot be taxed for this Assessment Year i.e. AY 2018-19, as it does not represent any amount received, due, or vested in him during that year. The annuity was structured to be paid to the assessee only after four years, in the form of monthly instalments from LIC. Since the assessee had no access to, or right over, the amount in AY 2018-19, it cannot be considered part of his salary or perquisite income for that year under section 15 or 17 of the Act. The assessee further submitted before CIT(Appeals) that he has already offered the annuity instalments actually received from LIC (amounting to Rs. 1,40,727/-) to tax under the head "salary" in his return for AY 2018-19. Therefore, if the entire Rs. 20 lakhs is also taxed in the same year merely because the employer paid it to LIC, and the same sum is again taxed in the future when the annuity installments are received, it would clearly amount to double taxation of the same income-once at the stage of employer’s contribution and Biswas Manik vs. ITO Asst.Year –2018-19 - 5– again at the time of actual receipt. In support of this, the assessee had earlier placed reliance on the Supreme Court judgment in CIT vs. L.W. Russel, which held that employer contributions towards annuity policies cannot be taxed in the employee’s hands unless a vested right has accrued to the employee. Until such time as the employee has a vested right-i.e., the amount becomes due or receivable-no tax can be levied. Since in the present case the assessee had no such vested right in AY 2018-19, the taxability cannot arise merely because of the employer’s contribution. Since the amount has not been received or become due, and will be taxed in future years when the annuity is actually paid out, it must not be added to income in the current year.

We have carefully considered the case of the assessee, the documents on record, and the applicable legal position. The issue for adjudication is whether the contribution of Rs. 20,00,000/- made by the employer to LIC for purchasing an annuity policy in the name of the assessee-payable in future-can be taxed as a perquisite in the hands of the assessee in AY 2018-19 under section 17(2)(v) of the Act. Section 17(2)(v) of the Act includes within the definition of perquisite any sum paid by the employer to effect a contract for an annuity, subject to certain exclusions. However, in order for such a payment to be taxed in the hands of the employee, it is essential, as per section 15 of the Act, that the amount is either due, paid, or allowed to the employee. The law is well settled that a contingent benefit or a non-vested future entitlement cannot be brought to tax in the year of payment by the employer unless the employee acquires Biswas Manik vs. ITO Asst.Year –2018-19 - 6– a vested right in the amount. The Hon’ble Delhi High Court, in Yoshio Kubo vs. CIT [2013] 357 ITR 452 (Del), dealt with an identical issue where employer contributions towards a pension fund or annuity were held to be not taxable as perquisites in the year of contribution. The Court held that when the amount does not result in a direct present benefit to the employee and the employee has no vested right over the same, the payment made by the employer does not amount to a perquisite under section 17(2)(v) of the Act. Further, the Hon’ble Supreme Court in CIT vs. L.W. Russel [1964] 53 ITR 91 (SC) clarified that amounts paid by the employer towards pension/annuity schemes are not taxable in the hands of the employee unless the employee acquires a vested right in the sum so paid. In the present case, the assessee acquired no such vested right in AY 2018– 19, and the annuity payments commenced only four years thereafter. Moreover, from the records it is observed that the assessee has in fact offered to tax, on accrual/receipt basis, the annuity income received from LIC in this year under the head “Income from Salary.” Therefore, taxing the employer's payment of Rs. 20,00,000/- in AY 2018-19 would amount to taxing the same amount twice-once at the stage of employer’s contribution and again at the time of annuity receipts-resulting in double taxation, which in our view is impermissible in law. The Department’s reliance on Form 16 and Form 26AS is erroneous, as these do not override the substantive legal provisions under the Act. Moreover, the employer’s payment to LIC was not made on behalf of the employee nor credited to his account; hence, it cannot be treated as income due, paid or allowed to him in that year. We also note that the identical position has been upheld Biswas Manik vs. ITO Asst.Year –2018-19 - 7– in several cases by the Hon’ble Delhi High Court, including in CIT vs. Mehar Singh Sampuran Singh Chawla [1973] 90 ITR 219 (Del), where it was held that the employee must acquire a vested right in the employer’s contribution for it to be taxed as a perquisite. In view of the above discussion and binding judicial precedents, we hold that the addition of Rs. 20,00,000/- made by the Assessing Officer in the hands of the assessee for AY 2018-19 is not sustainable in law. The assessee did not acquire any vested or enforceable right over the said amount in the relevant assessment year, and it cannot be taxed merely because the employer chose to contribute to LIC to effect an annuity for the future benefit of the employee.

Accordingly, the addition of Rs. 20,00,000/- is directed to be deleted.

In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 08/08/2025