Subramanian Kathirsen Vs ITO (ITAT Chennai)
The Chennai Bench of the Income Tax Appellate Tribunal considered the assessee’s appeal against the order dated 15.01.2025 passed by the Commissioner of Income-tax (Appeals), NFAC, for Assessment Year 2019-20. The dispute concerned the taxability of compensation received by the assessee from Pfizer Healthcare India Pvt. Ltd. under a voluntary separation scheme and the denial of relief under Section 89(1) of the Income-tax Act, 1961.
The assessee, an individual, filed the return of income declaring total income of ₹53,34,390. During the relevant year, the assessee was employed with Pfizer Healthcare India Pvt. Ltd. for part of the year and later with Hibrow Healthcare Pvt. Ltd. The case was selected for scrutiny on account of a substantial claim under Section 89(1) and a large refund claim. The Assessing Officer disallowed the relief claimed under Section 89(1) amounting to ₹12,80,076.
Before the CIT(A), it was noted that Pfizer Healthcare India Pvt. Ltd. intended to exit its Aurangabad plant because of significant long-term business losses and introduced a financial scheme for permanent employees. Under the scheme, employees voluntarily opting to retire were entitled to compensation based on specified criteria, including 75 days’ wages for every year of service, wages for the remaining service period until retirement age, notice pay equivalent to 90 days’ gross salary, and other incentives such as early bird and group incentives. The assessee opted for the scheme and received total compensation of ₹53,34,390. In the return of income, the assessee offered the compensation to tax but claimed relief under Section 89(1) on the ground that it represented salary received in advance. During the appellate proceedings, the assessee also raised an alternative contention that the amount constituted a capital receipt arising from the permanent loss of the source of income. It was further submitted that there was no termination or retrenchment by the employer, that the assessee had voluntarily resigned, and therefore Section 56(2)(xi) was inapplicable. The CIT(A) rejected these contentions and held that the receipt was taxable under Section 2(24)(x)(ivb) read with Section 56(2)(xi), relying on the explanatory notes to the Finance Act, 2018.
