Kalyanasundaram Ranjithkumar Vs ITO (ITAT Chennai)
Case Summary and Holding
The Income Tax Appellate Tribunal (ITAT), Chennai Bench, heard an appeal filed by the assessee, Kalyanasundaram Ranjithkumar, challenging the taxation of an ex-gratia payment received from his employer, Pfizer Healthcare India Pvt. Ltd., following the closure of its manufacturing unit. The core issue was whether this payment, claimed as exempt by the assessee, constituted taxable income as “profits in lieu of salary” under Section 17(3) of the Income Tax Act, 1961.
The ITAT, after reviewing the facts and judicial precedents, ruled in favour of the assessee. The Tribunal held that since the payment was voluntary (ex-gratia) and made without any contractual obligation on the part of the employer, it did not qualify as compensation under Section 17(3)(i). Consequently, the ITAT set aside the orders of the lower authorities and directed the Assessing Officer to delete the addition, allowing the assessee’s claim for exemption.
Factual Background and Dispute
The assessee, a salaried employee, received a full and final settlement, including an ex-gratia amount of ₹ 35,47,920/-, after voluntarily resigning from service due to the planned closure of his employer’s unit during the financial year 2018-19 (Assessment Year 2019-20).
The assessee claimed this ex-gratia amount as exempt income under Section 10 of the Act, arguing that it was not part of the employment contract. The Assessing Officer (AO), however, disallowed the exemption. The AO’s primary reason was that the ex-gratia amount was not covered by the instances of exempt payments specified in CBDT Circular No. 573 dated 21.08.1990. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO’s disallowance, leading the assessee to file an appeal before the ITAT.
