Surety Bond repayment income tax claim

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  1. Gursharan

    Gursharan New Member

    Dear Sir,
    I during the financial year 2014-15 I worked with one company for 8 months and resigned. Later, during the next financial year 2015-16 the company asked me to pay the Surety bond money - which was equivalent to my 8 months salary and interest on 8 months salary.
    Sir, I want to claim the loss incurred by me due to the repayment of my salary and interest to my Ex-employer. Please let me know
    1) As to how I should claim my salary loss when filling income tax return
    2) it has to be claimed in which financial year?
     
  2. ZED

    ZED Well-Known Member

    Dear Sir,

    I regretfully submit to you that this payment is not specifically allowed as deduction under Income Tax Act ,1961 , nor there is any rule which provides for this deduction.

    As per S.15 of the Act, the income is chargeable to tax on due basis and in your case the income has become due and was even paid. What you paid later was a compensation and it was not the case when the salary did not accrued to you.

    There is no enabling provision in the Act or under the rules made thereunder which entitles an assessee to adjust this amount. I am afraid that if adjustment is made by the assessee then he might have to follow the channel of appeals.




    But, Sir there are chances that that bond is not fully legal.
    What is written in the bond?

    [I am still studying this subject and what I have studied so far from various forums,blogs and judgements have been mentioned below.]

    Some judgement suggests that only the loss which has occurred to the employer can be recovered and not just any amount mentioned in the contract. The loss would be the expense of staff training etc and not the salary amount. The actual loss is to be determined by the court and is not determined solely on the basis of contract.

    Note: I AM NOT SAYING THAT COMPENSATION IS NOT TO BE PAID TO THE EMPLOYER. I AM SAYING THAT COMPENSATION HAS TO BE DETERMINED BY THE COURT AND ONLY THAT COMPENSATION NEEDS TO BE PAID AND NOT THE ENTIRE SALARY OR AMOUNT MENTIONED IN THE CONTRACT.


    As per S.27 of the Indian contract Act,1872 one can not be restrained for exercising a lawful employment or any business/profession.

    Further as per the THE BONDED LABOUR SYSTEM (ABOLITION) ACT, 1976 , no one can force anyone to be a bonded labour.


    S.4(2) After the commencement of this Act, no person shall- (a) make any advance under, or in pursuance of, the bonded labour system, or (b ) compel any person to render any bonded labour or other form of forced labour.


    S.3 The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act, or in any instrument having effect by virtue of any enactment other than this Act.


    S.2(g) "bonded labour system" means the system of forced, or partly forced, labour under which a debtor enters, or has, or is presumed to have, entered, into an agreement with the creditor to the effect that,-

    (i) in consideration of an advance obtained by him or by any of his lineal ascendants or descendants (whether or not such advance is evidenced by any document) and in consideration of the interest, if any, due on such advance, or

    (ii) in pursuance of any customary or social obligation, or

    (iii) in pursuance of an obligation devolving on him by succession, or

    (iv) for any economic consideration received by him or by any of his lineal ascendants or descendants, or

    (v) by reason of his birth in any particular caste or community,- he would-
    (1) render, by himself or through any member of his family, or any person dependent on him, labour or service to the creditor, or for the benefit of the creditor, for a specified period or for an unspecified period, either without wages or for nominal wages, or

    (2) for the freedom of employment or other means of livelihood for a specified period or for an unspecified period, or

    (3) forfeit the right to move freely throughout the territory of India, or

    (4) forfeit the right to appropriate or sell at market value any of his property or product of his labour or the labour of a member of his family or any person dependent on him, and includes the system of forced, or partly forced, labour under which a surety for a debtor enters, or has, or is presumed to have, entered, into an agreement with the creditor to the effect that in the event of the failure of the debtor to repay the debt, he would render the bonded labour on behalf of the debtor;


    [Explanation.-For the removal of doubts, it is hereby declared that any system of force or partly forced labour under which any workman being contract labour as defined in clause (b) of subsection (1) of section 2 of the Contract Labour (Regulation and Abolition) Act, 1970 (73 of 1970), or an inter-State migrant workman as defined in clause (e) of sub-section (1) of section 2 of the Inter-state Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 (30 of 1979), is required to render labour or service in circumstances of the nature mentioned in sub-clause (1) of this clause or is subjected to all or any of the disabilities referred to in subclauses (2) to ( 4), is "bonded labour system" within the meaning of this clause].



    S.2(1)(b) of Contract Labour (Regulation and Abolition) Act, 1970 (73 of 1970) a workman shall be deemed to be employed as "contract labour" in or in connection with
    the work-of:-an establishment when he is hired in or in connection with such work by or

    through a contractor, with or without the knowledge of the principal employer;
     
    Last edited: Jul 16, 2016
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