Case Law Details
Rajeshwar Sharma Vs ITO (ITAT Chandigarh)
Summary: The appeals before the ITAT Chandigarh were filed by different assessees against orders of the Commissioner of Income Tax (Appeals). Since a common issue was involved, the appeals were heard together, with the case of Rajeshwar Sharma treated as the lead case. One of the grounds relating to cash deposits was not pressed by the assessee and was accordingly dismissed.
The principal issue concerned exemption claimed under Section 10(10A) of the Income Tax Act in respect of a lump-sum amount received from the assessee’s erstwhile employer, Ranbaxy Laboratories Ltd. The assessee claimed that the payment represented retirement benefits in the nature of commuted pension and was therefore eligible for exemption under Section 10(10A). The Assessing Officer disallowed the claim, observing that the payment did not qualify for exemption and treating it as taxable.
In appeal, the CIT(A) accepted that Section 10(10A)(ii) could apply even to private-sector employees. However, the CIT(A) held that the payment was not made under any scheme for commutation of pension. According to the CIT(A), the amount was paid as a one-time lump sum following the employer’s decision to discontinue a retirement policy. Since there was no provision for commutation of pension under the policy, the exemption claim was rejected.
The Tribunal examined the nature of the payment and noted that the company had been taken over by a new employer, which terminated the services of employees on account of retrenchment. The compensation paid to employees was determined by considering factors such as length of service, basic salary, age, and other relevant criteria. The Tribunal observed that the payment was compensation for loss of employment and future subsistence resulting from retrenchment.
The Tribunal held that, even if the amount could not strictly be described as commuted pension, it represented compensation paid by the employer upon termination of employment. It concluded that the payment was a capital receipt in the hands of the assessee and that no part of the amount was taxable. Accordingly, the disallowance and additions made by the Assessing Officer were deleted. The Tribunal further held that the assessee would be entitled to claim refund or adjustment of taxes paid on the compensation, if such claim was made.
Since the facts and issues in the connected appeals were identical, the Tribunal applied the same reasoning to those cases as well. The lead appeal was partly allowed, while the other appeals were allowed.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
The present appeals has been preferred by the different assessees against the respective orders of the Commissioner of Income Tax (Appeals)-2, Chandigarh [hereinafter referred to as CIT(A)].
2. Since common issue is involved in all the appeals, hence, these were heard together and are being disposed of by this common order for the sake of convenience. ITA No.870/Chd/2018 in the case of ‘Rajeshwar Sharma’ is taken as lead case for narration of facts.
ITA No.870/Chd/2018
3. The appeal is barred by a limitation period of 3 days. Considering the shortness of the delay period, the delay in filing the appeal is hereby condoned.
4. The assessee has taken following grounds of appeal:-
1. Under the facts and circumstances of the case and in law, the Ld. CIT(A) Chandigarh has erred in upholding the additions made by the Ld. Assessing officer and disregarding the provisions of sub-section (ii) of section 10(10A) ignoring the fact that the amount of Rs. 28,08,847/- received by the assessee was commuted pension on account of retirement benefit.
2. That the Ld. CIT(A) is wrong in upholding the addition amounting to Rs. 2,00,000/- in respect of cash deposits as the same as were made out of cash withdrawals done by the assessee in the previous years.
5. The Ld. Counsel for the assessee has submitted that as per the instruction of the client, he does not press Ground no.2 of the appeal. A separate note that this ground is not pressed is also made by the counsel for the assessee under his signatures. In view of this, Ground No.2 is dismissed as not pressed.
6. Now coming to the Ground No.1 of the appeal. The brief facts relating to the issued are that during the assessment proceedings, the Assessing officer noted that the assessee had claimed exemption u/s 10 (10A) of the Income-tax Act, 1961 (in short ‘the Act’) amounting to Rs. 14,00,236/- (50% of 28,00,741/-), received as lump sum payment from its erstwhile employer i.e. M/s Ranbaxy Laboratories Ltd on account of discontinuance of certain retirement policy of company. The amount was claimed by the assessee to be amount received on account of retirement benefits by his employer company M/s Ranbaxy Laborites Ltd./, as per company’s policy and was thus in the nature of commuted pension and therefore, eligible for exemption u/s 10(10A) of the Act. In para 6.1, the Assessing officer observed that section 10(10A) relates to members of the civil services, defence or to the members of all India service or to the members of the civil services of a State or holder of civil posts under a state or to the employees of a local authority or a corporation established by a Central, State or provincial Act and not the employees of the private companies. However, the Assessing officer also further examined the claim of exemption and finally disallowed the same for different reasons.
7. In appeal, so far as the observation of the Assessing officer that the benefit of section 10(10-A) of the Act was not available to the assessee, the Ld. CIT(A) held that as per the provisions of section 10(10A)(ii) of the Act, the exemption was also available to the private employees also. However, the Ld. CIT(A) confirmed the disallowance made by the Assessing officer observing that the aforesaid payment was made by the employer of the assessee employees as one time lump sum payment on account of closure of pension policy. That while calculating the amount payable to employees on retrenchment, various factors were considered including the salary, length of service completed, number of years remaining till retirement etc. of the employees. He held that the amount had not been paid under the scheme of commutation of pension rather the same was paid on account of retrial policy being unilaterally withdrawn by the employer and that the amount is not a commutation of pension. He also observed that even in the retirement policy, there was no provision regarding any commutation of pension. He, therefore, held that the assessee was not eligible for exemption as enumerated in section 10(10A) of the Act and denied the exemption claimed by the assessee on this account.
8. We have considered the rival submissions and have also gone through the record. Though in strict terms, it may not be said that the amount received by the assessee was on account of commutation of pension, however, the fact on the file is that the aforesaid amount was given by the new employer who has taken over the company from the earlier employer and he had terminated the services of the employees on account of job retrenchment. The amount was paid as a compensation for retrenchment of services taking into consideration the length of service, basic salary, the age and other factors. In our view, the said amount is a compensation paid by the employer while terminating the services of the employee on account loss of job and further subsistence, thus, the said amount was just a capital receipt in the hands of the assessee. In fact, no part of amount received by the assessee is taxable. We, therefore, allow the appeal of the assessee and delete the disallowance and consequent additions made by the Assessing officer in this respect. We further hold that the assessee is entitled to claim refund / adjustment of the tax paid in respect of the aforesaid compensation received, if so, claimed by the assessee. In the above terms, the appeal of the assessee stands partly allowed.
ITA No. 871 & 872/Chd/2018
9. Since the facts and issue involved in all the appeals are identical, the issue is these appeals is decided accordingly.
10. In view of this, the appeal of the assessee for assessment in ITA No. 870/Chd/2018 stands partly allowed, whereas, appeals of the assessees in ITA Nos. 871 & 871/Chd/2018 are allowed.
Order pronounced in the Open Court on 11.03.2019
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