• Jul
  • 29
  • 2012

Voluntary Retirement -Allowability of exemption u/s 10(10C) & rebate u/s 89

Voluntary Retirement – Assessee can claim both exemption u/s 10(10C) & rebate u/s 89

The assessee is entitled to the exemption under section 10(10C) of the Act and also rebate under section 89 of the Act in respect of the amount received in excess of Rs.5,00,000 on account of voluntary retirement. Thus their Lordships have held that the assessee, who opts for voluntary retirement, is not only entitled to exemption under section 10(10C) but also rebate under section 89 of the Income Tax Act. Similar view is taken by the Hon’ble Karnataka High Court in the case of CIT v. P. Surendra Prabhu (supra) wherein their Lordships held as under :

That the assessee, employee of the respondent bank was not only entitled to the benefit of exemption under section 10(10C) of the Act to the extent prescribed in the provision itself but for any amount over and above the prescribed limit; under the aforesaid provision, the assessee was also entitled to relief under section 89(1) of the Act read with rule 21A.

INCOME TAX APPELLATE TRIBUNAL,  CHANDIGARH

ITA No. 507/Chd/2012 –  Assessment Year: 2007-08

Shri Manmohan Singh Bedi  v.  A.C.I.T.

Date of Pronouncement: 26.07.2012

 ORDER

PER T.R. SOOD, A.M

In this appeal the assessee has raised the following ground:

“That on facts and circumstances of the case, the ld. CIT(A) was not justified in upholding the disallowance of exemption u/s 10(10C) of the Income-tax Act.”

2. The appeal has been filed late by 541 days. The assessee has filed an application for condonation of delay which is duly supported by the affidavit. The ld. counsel of the assessee referred to the application and pointed out that  originally the assessee has filed return declaring income of Rs. 13,10,521/- on  which total tax due including interest was Rs. 80,950/-. Later on this return was  revised declaring total income of Rs. 8,10,521/- after claming deduction u/s  10(10C) amounting to Rs. 5.00 lakhs and total tax remained only at Rs.  50,369/-. However, the Assessing Officer did not allow the deduction u/s  10(10C) of the Act. Accordingly rectification application was moved for allowing  deduction u/s 10(10C). The rectification application was rejected vide  Rectification order dated 16.2.2010 on which tax due was determined at Rs.  80,954/-. The assessee was advised not to file the appeal because total benefit  which the assessee could have received was less than Rs. 30,000/- and the  assessee was advised that after paying fee to the Tribunal and Advocate Fee 2  nothing would be gained. Accordingly no appeal was filed. However, later on  the Assessing Officer passed another rectification order u/s 154 on 6.3.2012 in  which net tax payable was shown at Rs. 3,43,607/-. When such a huge  demand was raised then the assessee was left with no option but to file appeal  before the Tribunal. Therefore, the appeal was filed late because of the  sufficient cause and the same may be condoned particularly in view of the fact  that the issue raised in appeal is covered in favour of the assessee.

3. On the other hand, the ld. DR for the revenue submitted that once the  assessee had accepted the decision by not filing any appeal then later on the  same could not be made as reason for explaining the delay.

4. We have heard the rival submissions carefully and we are satisfied that  the assessee had a sufficient cause for not filing the appeal in time. The  assessee being an employee might have initially accepted the decision of the  Department because additional tax payable was only Rs. 30,000/- to avoid  litigation expenses. However, the demand has been increased to Rs.  3,43,607/- vide Rectification order dated 6.3.2012 then the assessee was  forced to file the appeal. We are of the opinion that this is reasonable and  sufficient cause for filing the appeal late and accordingly we condone the  delay.

5. As far as the merits of the case are concerned, we find that the issue is  squarely covered in favour of the assessee by the order of the Tribunal in case  of Shri Bikran Jit Passi V DCIT dated 9.11.2011, ITA NO. 925/Chd/2011 A.Y   2008-09. In this case the Tribunal has held as under:-

“”The present appeal filed by the assessee is directed against the order, dated 14.07.2011 of the ld. CIT(A) Panchkula  passed u/s 250(6) of the Income-tax Act,1961 (in short hereinafter referred to as ‘the Act’)

2. The assessee has raised the following grounds of appeal :

“1. That the ld. CIT(A) has erred in law in upholding the withdrawal of exemption of Rs.5,00,000/- claimed under Section 10(10C) of the Act which is arbitrary and unjustified.

2. That the ld. CIT(A) has further erred in law as well as on facts in holding that the ‘Exit Option Scheme” does not satisfy the conditions laid under Section 10(10C) read with rule 2BA which is incorrect and as such the exemption withdrawn and upheld is wholly unwarranted.

3. That the order of the ld. CIT(A) is erroneous, arbitrary, opposed to law and facts of the case and is, thus untenable.”

3. The facts of the case in brief are that the assessee Bikram Jit Passi filed return of income, on 11.08.2008 for the assessment year 2008-09. During the course of assessment proceedings, the AO noted that the assessee had claimed exemption u/s 10(10C) of the Act amounting to Rs.5,00,000/-. The AO disallowed the claim of the assessee’s as not being eligible for exemption u/s 10(10C) of the Act.

4. The CIT(A) upheld the order of the AO. The relevant findings of the CIT(A) are as under :

“Keeping in view the clear conditions in the scheme regarding filling up of vacancies caused by the release of officers and the confirmation by the Bank at point No.10 above that the scheme does not comply with Section 10(10C) of the IT Act and is not approved by Income Tax Department conditions No. (iii) & (iv) of Rule 2BA are violated. Therefore, the scheme is not eligible for exemption under Section 10(10C) of the IT Act,1961. As a result, the assessees are not held eligible for exemption u/s 10(10C) of the Act.”

5. We have heard both the parties and carefully perused and considered the facts of the appeal. The ld. ‘AR’ placed reliance, on the decision, in the case of Pandya Vinod Chandra Bhogilae V ITO (2010) 045 DTR 105 ITAT, Ahmedabad, to state that the fact- situation of the present appeal is squarely covered by the decision. Having considered the decision, we found that the same is applicable to the facts of the present cases. The relevant and operative part of the decision is reproduced hereunder :

“2. Thus the only issue involved in this appeal is about allowability of exemption under section 10(10C) of the Income Tax Act, 1961.

3. The facts of the case are that assessee is a Deputy Manager in SBI and has taken VRS on 31-5-2006 under exit option scheme introduced by the bank of India with effect from 7-5-2005. The assessee received salary and pension amounting to Rs.3,81,894 (including exgratia). On examination of Form No.16 the Assessing Officer noticed that assessee received exgratia of Rs.3,07,236 on VRS. He claimed exemption under section 10(10C) of the Act. The Assessing Officer disallowed the claim by following circular No. Chief CIT, Baroda letter BRD/Chief CIT/Tech/MICS/10(10C)/2009-10, dated 17-6-2006. The assessee relied on the decision of Tribunal, Kolkata in the case of Dy.CIT v. Krishna Gopal Saha (2009) 29 DTR (Kol)(TM)(Trib) 385 but the learned Assessing Officer did not agree and made the addition. The learned Commissioner (Appeals) also confirmed the disallowance by trying to distinguish the decision of Third Member in Dy.CIT v. Krishna Gopal Sahas case (supra).

4. We have heard the parties and perused the material on record. In our considered view the distinction cited by the learned Commissioner (Appeals) is not sound and does not stand to reason. The only basis for not allowing the claim has been that scheme for VRS is not in accordance with rule 2BA. However,, it has not been pointed out how the employer has not framed the scheme in accordance with rule 2BA. Earlier till 2002 schemes were required to be approved by the Chief Commissioner but thereafter such requirement has been dispensed with and, therefore, it is only for the employer to frame the scheme for VRS or for earlier exit option. If Assessing Officer had any doubt about the scheme he could have enquired from the employer. So far as the assessee employee is concerned, he cannot be penalized and tax will be levied on him on the assumption that the scheme framed by employer is not in accordance with rule 2BA. In any case, the judgment of Third Member in Dy.CIT v. Krishna Gopal Saha (supra) is clearly applicable and we do not find any reason to take a different view. For the sake of convenience we refer to following para from the Third Member judgment in Dy.CIT v. Krishna Gopal Sahas case (supra) as under:

5. At the time of hearing before me, none appeared on behalf of the assessee-respondent. I have, therefore, heard the learned department Representative and perused the material placed before me. I find that the issue has been considered by the Hon’ble jurisdictional High Court in the case of SAIL DSP VR Employees Association 1998 v. Union of India (supra) in which their Lordships held as under :

Section 10(10C) of the Income Tax Act, 1961, uses the expression any amount received by an employee…. At the time of his voluntary retirement in accordance with any scheme or schemes of voluntary retirement…. if a plain literal interpretation of statutory provision produced a manifestly absurd and unjust result, which the legislature could not have intended, the court is supposed to modify the language used by the legislature even to do some violence to it so as to achieve the obvious intention of the legislature and produce a rational construction. An expression used in the statute is not always to be interpreted literally or grammatically. Sometimes it has to be interpreted having regard to the context in which the expression is used and having regard to the object and purpose for which the same is enacted. Sec.10(10C) was inserted in order to make voluntary retirement attractive so as to reduce human complements for securing economic viability of certain companies. This object was elaborated by various departmental circulars and explanatory statements issued from time to time. Similarly, rule 2BA of the Income Tax Rules, 1962, which was inserted by IT (Sixteenth Amendment) Rules, 1962, was amended from time to time. All these go to show that this was intended to make voluntary retirement more attractive and beneficial to the employee opting for voluntary retirement. Therefore, this has to be interpreted in a manner beneficial to the optee for voluntary retirement, if there is any ambiguity.  Sums paid on voluntary retirement to the extent of rupees five lakhs are exempted from being charged to tax by reason of section 10(10C). Even if the payment is stretched over a period of years, the same would not become chargeable to tax in any subsequent assessment year. From the above it is evident that their Lordships of the jurisdictional High Court held that an employee, who takes voluntary retirement, is entitled to deduction under section 10(10C) even if the payment is stretched over a period of years. They have also held that provision of section 10(10C) should be interpreted in a manner beneficial to the optee for voluntary retirement. It may be pointed out that in the above-mentioned case, the employer i.e. SAIL was of the opinion that the employees were not entitled to exemption under section 10(10C) and accordingly, SAIL had been deducting tax at source on the amount paid under their voluntary retirement scheme. The facts are similar in the assesses case, because in the case of the assessee also, the employer believing that the assessee is not entitled to deduction under section 10(10C) has deducted tax at source on the amount paid on voluntary retirement. The facts being identical, the above decision of Hon’ble jurisdictional High Court would be squarely applicable to the case under appeal before the Tribunal.

6. Similarly, Hon’ble Bombay High Court in the case of CIT v. Nagesh Devidas Kulkarni (supra) held as under :

The assessee is entitled to the exemption under section 10(10C) of the Act and also rebate under section 89 of the Act in respect of the amount received in excess of Rs.5,00,000 on account of voluntary retirement. Thus their Lordships have held that the assessee, who opts for voluntary retirement, is not only entitled to exemption under section 10(10C) but also rebate under section 89 of the Income Tax Act. Similar view is taken by the Hon’ble Karnataka High Court in the case of CIT v. P. Surendra Prabhu (supra) wherein their Lordships held as under :

That the assessee, employee of the respondent bank was not only entitled to the benefit of exemption under section 10(10C) of the Act to the extent prescribed in the provision itself but for any amount over and above the prescribed limit; under the aforesaid provision, the assessee was also entitled to relief under section 89(1) of the Act read with rule 21A.

6. From the above it is evident that while the learned AM relied upon the decision of Hon’ble Madras High Court in the case of CIT v. M.Chelladurai & Ors. (2009) 317 ITR 370(Mad) : (2009) 176 Taxman 31, he has not taken into account the decisions of other High Courts including the jurisdictional High Court. The Hon’ble jurisdictional High Court under the identical facts held the assessee, i.e., the retired employee, to be entitled to deduction under section 10(10C). Similar view is taken by Hon’ble Bombay as well as Karnataka High Courts. The decision of Hon’ble jurisdictional High Court is binding upon us and moreover if two views are possible, while interpreting the provision, a view which is favourable to the assessee has to be adopted. Hon’ble jurisdictional High Court in the above- referred case of SAIL DSP VR Employees Association 1998 v. Union of India (supra) has also held that the provisions of section 10(10C) are to be interpreted liberally in a manner which is beneficial to retired employees in view of the above. I respectfully following the decisions of Hon’ble jurisdictional High Court, Bombay High Court and Karnataka High Court agree with the learned JM and hold that the assessee is entitled to exemption under section 10(10C) to the extent of Rs.5 lakhs.”

Respectfully following the above decision of the Tribunal, we allow the claim of assessee.”

6. The issue in question is covered by the decision of the Hon’ble Tribunal, as reproduced above. The assessee/appellant was also employed in the State Bank of India. Respectfully following the said decision, the appeal is decided in favour of the assessee.”

6. Following the above decision we decide the issue in favour of the  assessee.

7. In the result, appeal filed by the assessee is allowed.

Order pronounced on 26 .07. 2012


2 Responses to “Voluntary Retirement -Allowability of exemption u/s 10(10C) & rebate u/s 89”

  1. ashok says:

    kindly send me full financial benefits for vrs employees in indian psu banks after 34 years service.like pl encahment- grauity/ pension.

  2. Snehanshu Kar Chaudhuri says:

    I like to know whether such dual exemption under section 10(10)c and 89(1) is available on V.R.E
    exgratia for the Assessment Year 2013-2014.

              Snehanshu Kar Chaudhuri

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