Double taxation incidence

[Guest]

An employee joins Company 'X' in Dec'08 and gets a joining Bonus of 3 Lakhs. There is a clause that if he leaves the organisation in next 12 months, then he will have to return the above joining bonus of 3 Lakhs to the Company 'X', This employee decides to join another company 'Y' in May 09 and negotiates with 'Y' to pick up the above cost of 3 Lakhs which he has to give back to Company 'X'. The Problem now: He has crossed the financial year 2009-10 and had paid the tax on the joining bonus received from Company 'X' , now the same amount will again get taxed in his hands in Company 'Y' because it will also be treated as income in his hands. Although on a practical note he has earned it only once but will end up paying the tax twice. Moreover the income earned from Company 'X' in FY 2010-11 is not enough to set off the tax paid on joining bonus in previous year Please suggest a way out to avoid the double tax incidence on the above Income. Is there any case law/ruling etc which throws some light on above. Kindly help

[Rama Krishana]

The amount received from the employer is taxable under the head "Salaries". There is no provision under the head "Salaries" for deducting the amount paid to the employer for breach of contract. To avoid double taxation, I am not sure, but have one suggestion in mind that if second employer make payment to the first employer directly and do not show in the salary of the employee, double taxation may be avoided. But how practical is this and how legal is this is to be ascertained within the purview of provisions of Income Tax Act, 1961.

AI Summary

Double taxation of salary where a repaid joining bonus is taxed on receipt and again when an employer reimburses. An employee paid tax on a joining bonus treated as salary must repay it if leaving early; a subsequent employer's reimbursement risks being taxed again, and there is no provision under the head 'Salaries' to deduct repayments for breach of contract. A proposed practical workaround is direct payment by the second employer to the first, though its legality under the Income Tax Act, 1961 is uncertain.