Failure To Claim Tax Relief Doesn't Change Nature Of Salary Arrears: Delhi High Court

The Delhi High Court has clarified that the non-claim of relief under Section 89 of the Income Tax Act, 1961 does not determine the nature of income and cannot be taken to mean that such income is not arrears.

For context, Section 89 provides relief to taxpayers receiving salary arrears, advance salary, or profits in lieu of salary in a lump sum.

A division bench of Justices Anil Kshetarpal and Amit Mahajan was dealing with a petition challenging an order of the Central Administrative Tribunal (CAT), which had closed contempt proceedings arising from a dispute over EWS-based IAS allocation.

The petitioner, a Civil Services Examination candidate, had claimed entitlement to an IAS post under the Economically Weaker Sections (EWS) quota. However, he was allotted the Indian Police Service (IPS) after authorities treated his family income as exceeding the Rs 8 lakh threshold.

The dispute centered around a sum of Rs 49,599 reflected in his mother's income tax return. While the Income Tax Department later clarified that the amount represented salary arrears pertaining to a previous financial year, the Department of Personnel and Training (DoPT) denied EWS benefits, relying on the fact that no relief under Section 89 had been claimed.

The High Court underscored that Section 89 merely provides a mechanism for tax relief where salary is received in arrears or advance, and does not alter the intrinsic character of such income.

“CBDT's indication that no relief under Section 89 was claimed merely reflects a tax computation detail; it is not a substantive finding on whether the income was due in a prior year. Section 89 of the Income Tax Act, 1961 provides tax relief where salary is paid in arrears, but it does not alter the fact that such arrears were earned earlier. In other words, even if an assessee fails to invoke Section 89, the sum remains “arrears” by nature,” it held.

On the issue of contempt, the court held that no case of wilful disobedience was made out against the authorities since, the authorities had sought clarification from the Income Tax Department, which issued a “contradictory letter” stating that no Section 89 relief had been claimed.

The Department acted on the material available to them and as such, contempt jurisdiction could not be invoked merely because there was a disagreement over interpretation or alleged incorrect compliance, the Court said.

“It is clear from the record that the Respondents did approach the CBDT and sought information as directed. They obtained a written response and acted upon it. Even if it was arguable that the CBDT‟s response was incomplete (by not reflecting the 19.09.2024 clarification), the Respondents did not wilfully refuse to comply; rather, they acted on the material on record. Crucially, contempt requires more than an arguable error – it requires wilful disregard,” the Court said.

It added, “the Respondents‟ conduct did not constitute civil contempt. They took steps to seek clarification as directed, and acted upon the information available. The Petitioner‟s complaint essentially amounts to a claim that the Respondents erred in interpreting the data, not that they wilfully ignored it.”

As such, the High Court dismissed the petition.

For Petitioner: Advocate M.K. Bhardwaj

For Respondent: Advocate Amit Tiwari, CGSC with Advocates Ayushi Srivastava, Ayush Tanwar, Arpan Narwal and Kushagra Malik for UOI.