Parvez Mukhtar Khan Vs ITO (ITAT Pune)
The Income Tax Appellate Tribunal, Pune, considered the assessee’s appeal against the order of the National Faceless Appeal Centre dated 20.03.2024 for Assessment Year 2019-20. The principal issue was whether the amount received by the assessee under the “Pfizer Healthcare India Ltd. Financial Scheme for Employees at Aurangabad 2019” constituted taxable profits in lieu of salary under Section 17(3) of the Income Tax Act, 1961, or was a capital receipt.
The assessee, a salaried employee of Pfizer Healthcare India Pvt. Ltd., received Rs.77,41,038 under the employer’s financial scheme after the company decided to cease manufacturing operations at its Aurangabad plant due to long-term loss of product demand. During assessment proceedings, the Assessing Officer withdrew the assessee’s claim of relief under Section 89 and treated the payment as taxable under Section 17(3), assessing the amount as salary income. The Commissioner (Appeals) partly held that Rs.50,72,750 represented profits in lieu of salary while accepting certain conditional incentives as capital receipts, and rejected the assessee’s alternative plea that the entire amount constituted a capital receipt.
Before the Tribunal, the assessee contended that the payment was an ex gratia amount voluntarily paid by the employer upon premature cessation of employment due to closure of the manufacturing unit and represented compensation for loss of the source of income. It was argued that the payment was made outside the contract of employment and that the employer was under no legal obligation to make such payment. The assessee also relied upon the financial scheme floated by Pfizer Healthcare India Pvt. Ltd., which stated that the scheme was voluntary, intended to provide a beneficial settlement to employees, and that employees opting for the scheme would be treated as having voluntarily resigned and would not be entitled to compensation or notice pay under the Industrial Disputes Act, 1947.
