Case Law Details
DCIT Vs Prathamik Shikshak Sahakari Bank Ltd. (ITAT Pune)
Brief facts relating to the issue are that the Assessing Officer was of the view that in the absence of any scheme formulated by the assessee bank, the amount paid as ex-gratia to prematurely retiring employees was not to be allowed as deduction. The case of assessee on the other hand, was that the said payment was made in recognition of long term and meritorious services of the employees. The assessee had claimed the said expenditure as ex-gratia payment as in the nature of profits and in lieu of salary, and on the same, TDS was also deducted. However, the Assessing Officer disallowed the said expenses in view of section 35DDA of the Act and also held that they were not allowed as deduction under section 37(1) of the Act. The CIT(A) allowed the claim of assessee following the order of Tribunal in the case of another bank.
Where the assessee in recognition of the services provided to its retiring employees make certain ex- gratia payments in recognition of their services, which are not based on any scheme or instruction formulated by the employer assessee, then the same partakes the nature of profit in lieu of salary. The relationship between the assessee and retiring employees was admittedly as of employer and employee and the remuneration paid to such employees is part of the salary due to the said employee. Even the ex-gratia payment made by the assessee over and above the remuneration due to the employees partakes the character of profits in lieu of salary to such employee and is duly allowable as an expenditure in the hands of the assessee under section 37(1) of the Act.
FULL TEXT OF THE ITAT JUDGEMENT
The appeal filed by Revenue is against order of CIT(A)-4, Pune, dated 27.02.2017 relating to assessment year 2013-14 against order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).
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