Severance pay received for loss of job was to be treated as capital receipt

Ajay B. Ghose Vs DCIT (ITAT Mumbai)

Conclusion: Assessee was paid severance pay due to loss of employment and the receipt of severance pay though the nomenclature was not mentioned as ex-gratia but took the character of a capital receipt and the payment was made voluntary by the employer for loss of employment and such capital receipt was not taxable in the hands of the assessee.

Held: Assessee was working with the AREVA group from the year 2006. He had received the intimation with the addition of severance pay of Rs.74,28,585/- and mismatch of income as per Form no 26AS. In the present case, the fact remained that assessee was paid severance pay due to loss of employment because of shutting down of business operations in India. Further, such payment took character of a capital receipt and could not be considered taxable u/s 17(3)(i) as a compensation. The assessee has received the onetime payment and it was not recurring in nature. Assessee had lost his employment which was continued from the year 2006.  The receipt of severance pay though the nomenclature was not mentioned as ex-gratia but took the character of a capital receipt and the payment was made voluntary by the employer for loss of employment and such capital receipt was not taxable in the hands of the assessee. Accordingly, Assessing officer was directed to delete the addition.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The assessee has filed the appeal against the order of the Commissioner of Income Tax (Appeals)-(NFAC) Delhi passed u/s 143(1) and 250 of the Act. The assessee has raised the following grounds of appeal:

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