Suresh Pal Chauhan Vs ITO (ITAT Chandigarh)
The appeals before the ITAT Chandigarh involved employees of HMT Ltd., Tractor Division, Pinjore, who received compensation under a Voluntary Retirement Scheme (VRS/VSS) introduced following the Government of India’s decision to close the loss-making Tractor Division. The assessees had claimed that the compensation received on closure of the undertaking was exempt under Section 10(10B) of the Income Tax Act, whereas the Revenue treated it as eligible only for the limited exemption available under Section 10(10C).
The Tribunal examined the Government’s press release, Cabinet approval, budgetary support package, and the terms of the VRS/VSS scheme. It noted that the scheme was introduced as part of the closure of HMT Tractor Division and that employees who did not opt for VRS/VSS were to be retrenched under the Industrial Disputes Act, 1947. The Tribunal observed that the funds were specifically earmarked by the Government for payment of employee dues and closure-related compensation.
Relying on the decision of the Madras High Court in Hindustan Photo Films Workers and subsequent appellate orders in identical HMT cases, the Tribunal held that the compensation was in the nature of retrenchment/closure compensation and fell within Section 10(10B). It found that the scheme was intended to provide special protection to employees affected by the closure of the undertaking and that the facts were substantially similar to those considered by the Madras High Court.
