2004 (12) TMI 35 - HC - Income Tax

Compensation received under the voluntary retirement scheme - simultaneous benefit under section 10(10C) and 89(1) - There is no prohibition to the twin benefits in respect of the amount received under the voluntary retirement scheme - Tribunal was right in holding that the assessee is eligible to claim simultaneous benefit under section 10(10C) as well as section 89(1) in respect of the compensation received under the voluntary retirement scheme Further it is well settled that if two reasonable interpretations of taxing statutes are possible the one in favour of the assessee should be accepted

Summary

Issues Involved:
1. Eligibility of simultaneous benefits under Sections 10(10C) and 89(1) of the Income-tax Act, 1961.
2. Interpretation of the proviso to Section 10(10C).
3. Applicability of the principle of strict or literal construction in tax statutes.

Detailed Analysis:

Issue 1: Eligibility of simultaneous benefits under Sections 10(10C) and 89(1) of the Income-tax Act, 1961

The core issue in this appeal is whether the assessee is eligible to claim simultaneous benefits under Section 10(10C) and Section 89(1) of the Income-tax Act, 1961, in respect of compensation received under a voluntary retirement scheme (VRS). The Assessing Officer disallowed relief under Section 89(1) in addition to the exemption under Section 10(10C). However, the Commissioner of Income-Tax (Appeals) and the Income-tax Appellate Tribunal (ITAT) ruled in favor of the assessee, allowing both benefits.

The assessee, an employee of the State Bank of India, received Rs. 5,85,072 under a special VRS package. He claimed an exemption of Rs. 5 lakhs under Section 10(10C) and sought relief of Rs. 8,883 under Section 89(1) by spreading the amount over three preceding assessment years as per Rule 21A of the Income-tax Rules.

Issue 2: Interpretation of the proviso to Section 10(10C)

The Assessing Officer's contention was that Section 10(10C) provides a one-time relief of a maximum of Rs. 5 lakhs, restricted to one year only. The officer argued that claiming further relief under Section 89(1) over and above Rs. 5 lakhs and spreading it over multiple years violates the proviso to Section 10(10C).

The Commissioner of Income-tax (Appeals) countered this by stating that the proviso to Section 10(10C) only restricts further exemptions under Section 10(10C) in other assessment years and does not preclude relief under Section 89(1). The Commissioner cited the Central Board of Direct Taxes (CBDT) Circular No. 657, which supports the view that the word "thereunder" in the proviso refers solely to Section 10(10C) and not to other sections like Section 89(1).

Issue 3: Applicability of the principle of strict or literal construction in tax statutes

The judgment emphasizes two well-settled principles in tax law:
1. There is no equity in tax, and the principle of strict or literal construction applies.
2. If two reasonable interpretations of taxing statutes are possible, the one in favor of the assessee should be accepted.

The court cited several precedents to reinforce that taxing statutes must be interpreted based on their plain language without considering notions of equity or the intentions behind the legislation. The court concluded that if the plain language of the statute entitles the assessee to two benefits, both must be granted.

Conclusion:

The court held that the view taken by the Assessing Officer was incorrect. The second proviso to Section 10(10C) refers to exemptions claimed in any other assessment year, and every assessment year is a self-contained unit. The relief under Section 89(1) spread over several years does not violate the proviso to Section 10(10C). The court agreed with the Tribunal that there is no prohibition against twin benefits in respect of the amount received under the VRS. The relief under Section 89(1) aims to mitigate the hardship caused by high tax incidence due to progressive tax rates.

The court also noted that the word "salary" in Section 17 includes any profit in lieu of salary, covering compensation received under VRS. Thus, the assessee is entitled to both benefits under Sections 10(10C) and 89(1).

The appeal of the Department was dismissed, and the judgment affirmed the assessee's entitlement to claim simultaneous benefits under both sections.