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Rajasthan High Court · body

2007 DIGILAW 2232 (RAJ)

Commissioner of Income v. Rabindranath Lal

2007-11-21

R.M.LODHA, R.S.CHAUHAN

body2007
JUDGMENT 1. (Oral) - The Appellate Assistant Commissioner allowed deduction of ex gratia payment amounting to Rs. 48,575 received under the Voluntary Retirement Scheme (VRS) under section 89(1) over and above the exemption provided in section 10(10C) of the Income-tax Act, 1961. 2. The Revenue took exception to the order of the Appellate Assistant Commissioner by filing an appeal before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur. 3. The Tribunal noticed the decisions of the Madras High Court in the case of G.N. Badami v. CIT (1999) 240 ITR 263 and P. Arunachalam v. CIT (2000) 241 ITR 827 and the decision given by the Jaipur Bench of the Tribunal wherein it was held that the amount received under the Voluntary Retirement Scheme (VRS) constitutes compensation for "termination of service" for the purposes of section 17(3) and that the conditions laid down under section 89(1) are satisfied and the assessee is entitled to relief on the amount received under the voluntary retirement scheme as reduced by exemption under section 10(10C) of the Act. 4. In the case of CIT v. J. Visalakshi (1994) 206 ITR 531 , the question under consideration before the Madras High Court was : Whether the ex gratia compensation of Rs. 63,230 received by the assessee consequent on his resignation from the employment is entitled to the relief under section 89(1) of the Income-tax Act. The Madras High Court considered sections 89(1) and 17(3) of the Income-tax Act and held thus (page 533) : "The question as to whether the assessee is entitled to the relief under section 89(1) would depend upon the interpretation to be placed on the words 'termination of his employment', occurring in sub-section (3)(i) of section 17 of the Act. It is necessary to bear in mind that termination of service can take place either by resignation or by dismissal or by compulsory retirement or on attaining superannuation. That being so, we are of the view that there is no justification to confine the meaning of the word 'termination' only to the case of either voluntary retirement or superannuation, as per the stand taken by the Department. It must be borne in mind that section 89(1) read with section 17(3) of the Act are beneficial clauses intended to grant certain benefits to employees or persons in service. It must be borne in mind that section 89(1) read with section 17(3) of the Act are beneficial clauses intended to grant certain benefits to employees or persons in service. There fore, while placing interpretation on such clauses, the object with which such clauses are provided in the Act must be borne in mind, the object being to grant certain benefit to the person whose service is terminated. Therefore, if the meaning of the word 'termination' is confined to cases of voluntary retirement or superannuation only, the object of the clause will not be fully achieved and it would amount to restricting the scope of the beneficial clause. Hence, we are of the view that the Tribunal is justified in holding that the ex gratia compensation of Rs. 63,230, received by the assessee consequent on his resignation, is entitled to the relief under section 89(1) of the Act." 5. The view in the case of J. Visalakshi (1994) 206 ITR 531 has been followed by the Madras High Court in the case of CIT v. M. Raman (2000) 245 ITR 856 (Mad). This is what the Madras High Court said (page 856) : "The assessee has taken voluntary retirement from the service and received an amount of compensation at the time of his voluntary retirement. The question that arises is whether the compensation received by the assessee at the time of voluntary retirement would fall within the provisions of section 17(3)(i) of the Income-tax Act, 1961, that is, whether it can be regarded as salary and the assessee would be entitled to the relief provided under section 89 of the Income-tax Act, 1961. This court in the case CIT v. J. Visalakshi (1994) 206 ITR 531 (Mad) , held that if an employee receives at the time of resignation, the amount could be regarded as salary and the assessee would be entitled to the relief provided under section 89 of the Income-tax Act, 1961. The said principle rendered by this court in the case of resignation would equally apply to the case of voluntary retirement of an employee from service. The said principle rendered by this court in the case of resignation would equally apply to the case of voluntary retirement of an employee from service. Accordingly, the Appellate Tribunal was right in holding that the amount received by the employee at the time of voluntary retirement of service would be regarded as salary, and the relief under section 89 of the Income-tax Act, 1961, would be admissible in respect of the amount received by the assessee from his employer at the time of voluntary retirement." 6. The Delhi High Court in the case of CIT v. S. N. Chadha (2001) 249 ITR 31 , held that in terms of section 17(3)(ii) any payment other than those specified in the provision itself is included in the expression "salary". After noticing section 89(1) of the Income-tax Act, the Delhi High Court held thus (page 33) : "Even a bare reading of the provision makes it clear that it has application to any payment which is made under the provisions of clause (3) of section 17 as a 'profit in lieu of salary'. That being the position, the Tribunal was correct in its view that section 89(1) was applicable to the assessee's case. Our answer for both the questions is in the affirmative, in favour of the assessee and against the Revenue." 7. Mr. R.B. Mathur, counsel for the Revenue submitted that the decision of the Madras High Court in the case of M. Raman (2000) 245 ITR 856 has been challenged by the Revenue by filing special leave petition before the Supreme Court. In this connection, he referred to a Departmental circular which is mentioned at page 1396 of Chaturvedi and Pithisaria Income-tax Laws (5th edition) Suppl. Volume 3. He would submit that the view of Madras High Court has, thus, not attained finality. 8. The issue that has been raised in the present appeal came up for consideration before us directly in the case of CIT v. T. K. Paliwal [DB IT Appeal 141 of 2006] ( (2010) 322 ITR 101 (Raj)). Volume 3. He would submit that the view of Madras High Court has, thus, not attained finality. 8. The issue that has been raised in the present appeal came up for consideration before us directly in the case of CIT v. T. K. Paliwal [DB IT Appeal 141 of 2006] ( (2010) 322 ITR 101 (Raj)). In our order dated February 19, 2007, in the case of T. K. Paliwal (2010) 322 ITR 101 (Raj) , we considered the matter thus (page 102) : "The Revenue has preferred this appeal under section 260A of the Income-tax Act, 1961, aggrieved by the order of the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur passed on April 28, 2006, in group of matters. 2. The short question that has been raised in this appeal is as to whether the relief under section 89 of the Income-tax Act, 1961, is admissible to the assessee on the voluntary retirement scheme amount in excess of the exemption under section 10(10C) of the Income-tax Act, 1961 ? 3. It is not in dispute that the assessee, who was an employee of UCO Bank ('the employer'), took the voluntary retirement in the financial year 2001-02 under the Voluntary Retirement Scheme, 2001 (for short 'VRS') and received an amount of Rs. 11,40,881 from the employer at the time of voluntary retirement. The assessee in his return filed for the assessment year 2002-03 included the amount received on voluntary retirement in his taxable income from salary and after claiming an exemption of Rs. 5 lakhs in terms of section 10(10C) of the Income-tax Act, 1961 ('the said Act"), also claimed relief on excess amount of Rs. 5 lakhs under section 89 of the said Act. It appears that the case of the assessee was reopened under section 148 and after getting the response from the assessee, the Assessing Officer disallowed the relief claimed under section 89 vide order dated October 28, 2004. The assessee carried the matter in appeal to the Commissioner (Appeals). The Commissioner (Appeals) was satisfied with the contention of the assessee and allowed him the relief under section 89. The Revenue felt aggrieved by the decision of the Commissioner (Appeals) and filed an appeal before the Income-tax Appellate Tribunal (for short, 'the Tribunal'). The Tribunal heard the appeal with other connected matters and found no illegality in the order of the Commissioner (Appeals). The Revenue felt aggrieved by the decision of the Commissioner (Appeals) and filed an appeal before the Income-tax Appellate Tribunal (for short, 'the Tribunal'). The Tribunal heard the appeal with other connected matters and found no illegality in the order of the Commissioner (Appeals). It is this order, which is the subject-matter of challenge in this appeal. 4. The counsel for the Revenue invited our attention to rule 21A(e) and sub-rule (6) of the Income-tax Rules and contended that the pay ment received by the assessee on voluntary retirement being covered by clause (e) and there being specific order by the Board in exercise of the power conferred under sub-rule (6) declining relief under section 89, the assessee was not entitled to the relief under section 89 of the Income-tax Act. He would submit that the judgment of the Madras High Court delivered in the case of CIT v. M. Raman (2000) 245 ITR 856 , cannot be applied in the present situation as the statutory pro vision of section 10(10C) of the Income-tax Act was not in existence at the time when the said judgment was delivered. 5. That the amount received by the assessee on voluntary retirement is covered by section 17(3)(i) of the Income-tax Act cannot be doubted. 'Profits in lieu of salary' includes the amount of any compensation received by an assessee from his employer in connection with the termination of his employment. Cessation of employment because of voluntary retirement is also the termination of employment and the amount of the compensation received by the assessee from the employer in connection thereto is covered by 'profits in lieu of salary'. 6. Before the Income-tax Appellate Tribunal the whole emphasis of the Revenue was founded on letter of the Central Board of Direct Taxes dated April 23, 2001, which indicated that the amount up to Rs. 5 lakhs received under voluntary retirement scheme was exempt as per the provisions of section 10(10C) and after allowing this exemption, any balance amount was not eligible for relief under section 89. The Revenue also relied upon further clarification in the letter dated March 4, 2004. 5 lakhs received under voluntary retirement scheme was exempt as per the provisions of section 10(10C) and after allowing this exemption, any balance amount was not eligible for relief under section 89. The Revenue also relied upon further clarification in the letter dated March 4, 2004. The letter dated March 4, 2004, issued by the Central Board of Direct Taxes shows that the issue as to whether relief under section 89 would be eligible for amount of compensation under voluntary retirement scheme in excess of limit of exemption provided under section 10(10C) of the Income-tax Act was considered with the Ministry of Law in view of the judgment in the case of M. Raman (2000) 245 ITR 856 (Mad) and the Ministry of Law advised filing of special leave petition and that special leave petition has been filed before the Supreme Court. 7. We wanted to know from the counsel for the Revenue about the status of the aforesaid special leave petition, which is said to have been filed by the Revenue from the judgment of the Madras High Court in the case of M. Raman (2000) 245 ITR 856 (Mad). Counsel for the Revenue, however, submits that despite the best efforts, he has not been able to get any information in this regard and, therefore, he is not in a position to make any statement in this regard. Be that as it may, once it is held that the amount received by the assessee on voluntary retirement under voluntary retirement scheme is covered by section 17, we see no impediment in the assessee getting benefit of section 89 of the Income-tax Act irrespective of the amount up to Rs. 5 lakhs being exempt under section 10(10C). The relief under section 89 of the Income-tax Act is entirely different and cannot be denied merely because an amount up to Rs. 5 lakhs received on voluntary retirement is exempted under section 10(10C). Section 89 of the Income-tax Act operates in a different field and the relief given to an assessee under section 89 is for different purpose and cannot be mixed up with the exemption given under section 10(10C). Clause (viii) of section 10(10C) which provides that no exemption thereunder shall be allowed in relation to any other assessment year has nothing to do with the relief under section 89, which is distinct and independent. 8. Clause (viii) of section 10(10C) which provides that no exemption thereunder shall be allowed in relation to any other assessment year has nothing to do with the relief under section 89, which is distinct and independent. 8. Our attention was also invited to section 35DDA of the Income-tax Act. We are afraid, that the said section even remotely has no application to the assessee, who is not an employer. This section deals with amortisation of expenditure incurred under the voluntary retirement scheme by the employer. It has nothing to do with the amount received by an employee (assessee) from his employer in connection with voluntary retirement under the voluntary retirement scheme. 9. The Madras High Court in the case of M. Raman (2000) 245 ITR 856 (Mad) observed as under (page 856) : 'The assessee has taken voluntary retirement from the service and received an amount of compensation at the time of his voluntary retirement. The question that arises is whether the compensation received by the assessee at the time of voluntary retirement would fall within the provisions of section 17(3)(i) of the Income-tax Act, 1961, that is whether it can be regarded as salary and the assessee would be entitled to the relief provided under section 89 of the Income-tax Act, 1961. This court in the case of CIT v. J. Visalakshi (1994) 206 ITR 531 , held that if an employee receives at the time of resignation, the amount could be regarded as salary and the assessee would be entitled to relief provided under section 89 of the Income-tax Act, 1961. The said principle rendered by this court in the case of resignation would equally apply to the case of voluntary retirement of an employee from service. Accordingly, the Appellate Tribunal was right in holding that the amount received by the employee at the time of voluntary retirement of service would be regarded as salary, and the relief under section 89 of the Income-tax Act, 1961, would be admissible in respect of the amount received by the assessee from his employer at the time of voluntary retirement.' 10. The legal position ex-posited by the Madras High Court does not get changed because of the provision contained in section 10(10C). 11. The legal position ex-posited by the Madras High Court does not get changed because of the provision contained in section 10(10C). 11. In this view of the matter, the finding of the Income-tax Appel late Tribunal that the assessee is entitled to relief under section 89 of the Income-tax Act on voluntary retirement scheme amount exceeding Rs. 5 lakhs exempted under section 10(10C) of the Income-tax Act cannot be said to be erroneous. 12. The Income-tax appeal is dismissed accordingly." 9. For the self-same reasons, the order of the Income-tax Appellate Tribunal, therefore, does not call for any interference. 10. The Income-tax appeal is dismissed in limine. *******