ASSISTANT COMMISSIONER OF INCOME TAX v. SHARADKUMAR D. PARIKH
[Citation -2006-LL-0508-3]

Citation 2006-LL-0508-3
Appellant Name ASSISTANT COMMISSIONER OF INCOME TAX
Respondent Name SHARADKUMAR D. PARIKH
Court ITAT
Relevant Act Income-tax
Date of Order 08/05/2006
Assessment Year 2001-02
Judgment View Judgment
Keyword Tags termination of employment • profit in lieu of salary • termination of service • voluntary retirement • retirement scheme • ex gratia • vrs
Bot Summary: In the opinion of the AO, termination of services is done by the employer unilaterally, whereas on voluntary retirement as there is no coercion or compulsion on the part of the employer, it does not tantamount to termination of service; that in view of second proviso to s. 10(10C) exemption is available only under s. 10(10C) and not further allowance or relief can be allowed; that there is no provision under r. 21A for providing relief under s. 89(1) for ex gratia payments. The AO has further stated in the order As regards the compensation , the amount received under special VRS would not come under the purview of the compensation found in r. 21A(c) and under cl. The CIT(A) considered the issues raised before him as under: The first issue for consideration was whether VRS amounts to termination o f service in view of the Hon ble Madras High Court in the case of CIT vs. M. Raman 152 CTR 497: 245 ITR 856 and CIT vs. J. Visalkshi 120 CTR 248: 206 ITR 531, wherein their Lordships have held that the amounts received by the employee at the time of voluntary retirement would be regarded as salary and relief under s. 89(1) of the Act would be admissible in respect of the amount received by the employee from his employer at the time of voluntary retirement and there is no question of treating this amount as not being covered under s. 89(1) r/w s. 17(3) of the IT Act, 1961. The second issue before the CIT(A) was whether limit imposed by the proviso to s. 10(10C), the assessee was not entitled to any relief under s. 89(1). Again, the Hon ble Madras High Court in the case of CIT vs. G.V. Venugopal 193 CTR 661: 273 ITR 307 had to consider the following questions: On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in granting relief to the assessee under s. 10(10C)(viii), as the amount exceeding Rs. 5 lakhs is not eligible for relief under s. 89(1) as per Board s Circular F. No. 174/5/2001, dt. 2001-02, wherein identical issue was considered by the Tribunal and held that the assessee is entitled to relief under s. 89(1) of the IT Act, 1961, and, accordingly, confirmed the order of the CIT(A). In view of the above, we agree with the finding of the CIT(A) in the appeals of the Revenue that the payment received by the assessee has to be treated as profit in lieu of salary and cannot be treated otherwise, the assessee is entitled to relief under s. 89 of the Act in respect of the taxable portion of the amount received at the time of voluntary retirement.


All these appeals are heard together and are being disposed of by this consolidated order for sake of brevity and convenience. In all these appeals common issue involved is with regard to relief granted under s. 89(1) of IT Act, 1961. brief common facts are that all assessees took voluntary retirement under Voluntary Retirement Scheme (VRS) offered by employer. VRS was offered under Special Scheme of VRS framed in accordance with guidelines prescribed and approved by t h e Competent Authority. assessees received amount under special VRS package over and above regular retirement benefits. assessees claimed exemption under s. 10(10C) of IT Act, 1961 on said VRS amount. assessee claimed, on taxable portion of component, relief in return of income under s. 89(1). AO declined relief under s. 89(1) of Act to assessees on following grounds: "(a) that r. 21A does not envisage compensation received on voluntary retirement but only on termination of service. In opinion of AO, termination of services is done by employer unilaterally, whereas on voluntary retirement as there is no coercion or compulsion on part of employer, it does not tantamount to termination of service; (b) that in view of second proviso to s. 10(10C) exemption is available only under s. 10(10C) and not further allowance or relief can be allowed; (c) that there is no provision under r. 21A for providing relief under s. 89(1) (the said section is substituted by new s. 89 by Finance Act, 2002, w.e.f. 1st April, 1996) for ex gratia payments. AO has further stated in order As regards compensation , amount received under special VRS would not come under purview of compensation found in r. 21A(c) and under cl. (3) of s. 17. These provisions are found in Act and in Rules much before Scheme of VRS came into existence and so-called compensation out of special VRS amount do not find place in r. 21A for granting relief under s. 89(1) ." CIT(A) considered issues raised before him as under: first issue for consideration was whether VRS amounts to termination o f service in view of Hon ble Madras High Court in case of CIT vs. M. Raman (1999) 152 CTR (Mad) 497: (2000) 245 ITR 856 (Mad) and CIT vs. J. Visalkshi (1994) 120 CTR (Mad) 248: (1994) 206 ITR 531 (Mad), wherein their Lordships have held that amounts received by employee at time of voluntary retirement would be regarded as salary and relief under s. 89(1) of Act would be admissible in respect of amount received by employee from his employer at time of voluntary retirement and, therefore, there is no question of treating this amount as not being covered under s. 89(1) r/w s. 17(3) of IT Act, 1961. second issue before CIT(A) was whether limit imposed by proviso to s. 10(10C), assessee was not entitled to any relief under s. 89(1). On this issue, CIT(A) held that in view of Board s Circular No. 667, it is clear that s. 89(1) of Act cannot be confused with s. 10(10C), as both these provisions are independent, and there is no prohibition contained in either of provisions which prohibits assessee from availing exemption. Even earlier circular has not been withdrawn or superseded. It is pertinent to mention here that benevolent circulars are always binding upon tax authorities as held in various decisions of Hon ble Supreme Court including UCO Bank vs. CIT (1999) 154 CTR (SC) 88: (1999) 237 ITR 889 (SC). We agree with finding of CIT(A) on issue. third issue was whether amount received by assessee is ex gratia payment or has to be treated as compensation under s. 17(3) of Act. This clause describes payments which are considered to be profits in lieu of salary. plain reading of provision shows that to come within cl. (i) of sub-s. (3) of s. 17, payment should be by way of (i) compensation due to or received from employer or former employer, (ii) at or in connection with termination of employment or (iii) modification of terms of employment. That means that payment can be said to come within ambit of s. 17(3) if it satisfies conditions and one of two remaining conditions question as to what is nature of payments under VRS was considered by Hon ble Madras High Court in case of M. Raman (supra) wherein following questions arose before High Court that whether on facts and questions arose before High Court that whether on facts and circumstances of case, Tribunal was right in holding that voluntary retirement from service would fall under term "termination of employment" within meaning of s. 17(3) of IT Act, 1961, and that relief under s. 89(1) is admissible in respect of amount received by assessee-employee from employer at time of voluntary retirement. This issue was decided by Hon ble Madras - High Court in favour of assessee. Again, Hon ble Madras High Court in case of CIT vs. G.V. Venugopal (2005) 193 CTR (Mad) 661: (2005) 273 ITR 307 (Mad) had to consider following questions: "On facts and in circumstances of case and in law, learned CIT(A) has erred in granting relief to assessee under s. 10(10C)(viii), as amount exceeding Rs. 5 lakhs is not eligible for relief under s. 89(1) as per Board s Circular F. No. 174/5/2001, dt. 23rd April, 2001." Hon ble Madras High Court had decided this issue in favour of assessee by giving following findings: "It was also held by Tribunal in this case that payment under VRS was compensation for termination of service for purpose of s. 17(3) of Act and it was also held by Tribunal in this order that in view of r. 21A(1)(c) of IT Rules, conditions laid down under s. 89(1) are satisfied and hence assessee is eligible for relief. This Tribunal order has dealt with all aspects of case and thereafter it was held that assessee is eligible for relief under s. 89(1) and respectively following this Tribunal order, we hold that learned CIT(A) had rightly accorded relief under s. 89(1) to assessee and we find no infirmity in order of learned CIT(A) and decline to interfere in same." Similarly, J Bench of Mumbai Tribunal in case of ITO vs. Smt. Sandhya Nitin Gupte (ITA No. 3422/Mum/2004, dt. 30th Aug., 2004) for asst. yr. 2001-02, wherein identical issue was considered by Tribunal and held that assessee is entitled to relief under s. 89(1) of IT Act, 1961, and, accordingly, confirmed order of CIT(A). While giving this finding, Tribunal followed decision in case of ITO vs. Dilip Shirodkar (2004) 82 TTJ (Panaji) 869: (2005) 93 ITD 41 (Panaji). learned Departmental Representative did not bring anything contrary to our knowledge on issue. In view of above, we agree with finding of CIT(A) in appeals of Revenue that payment received by assessee has to be treated as profit in lieu of salary and cannot be treated otherwise, assessee is entitled to relief under s. 89 of Act in respect of taxable portion of amount received at time of voluntary retirement. same is upheld. In view of above, ground of Revenue is dismissed. As result, all appeals of Revenue are dismissed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. SHARADKUMAR D. PARIKH
Report Error