2005 (9) TMI 67 - HC - Income Tax

Amount received under the voluntary retirement scheme claim for exemption under section 10(10C) and also relief under section 89(1) - the amount received by the assessee under the voluntary retirement scheme after the exempted income under section 10(10C) is compensation received in connection with the termination of his employment within the meaning of section 17(3)(i) - we are of the opinion that the assessee employee of the respondent bank is not only entitled to the benefit of exemption under section 10(10C) to the extent prescribed in the provision itself and any amount over and above the prescribed limit under the aforesaid provision, the assessee is also entitled to the relief under section 89(1) read with rule 21A of the Rules - there is no default or failure on the part of the respondent bank when the relief under section 89(1), was granted to the assessee on his production of Form No. 10E - appeals filed by the Revenue require to be rejected and they are rejected

Issues Involved:
1. Entitlement to relief under Section 89(1) of the Income-tax Act.
2. Applicability of the second proviso to Section 10(10C) of the Income-tax Act.
3. Classification of the amount received under the Voluntary Retirement Scheme (VRS).
4. Compliance with Section 192(2A) of the Income-tax Act by the respondent bank.
5. Treatment of the respondent bank as an assessee in default under Section 201(1) and Section 201(1A) of the Income-tax Act.

Issue-Wise Analysis:

1. Entitlement to Relief under Section 89(1) of the Income-tax Act:
The court considered whether the assessee is entitled to claim relief under Section 89(1) of the Income-tax Act for the amount received over Rs. 5 lakhs under the VRS. The court noted that the compensation received by the assessee from his employer at the time of voluntary retirement is taxable under Section 17(3) of the Act as "profits in lieu of salary." The court concluded that since the amount is taxable as "profits in lieu of salary," the assessee is eligible for relief under Section 89(1) of the Act. The court also referenced the legislative intent behind Section 10(10C) and Section 89(1), emphasizing that the relief under Section 89(1) is applicable for any compensation received in connection with the termination of employment.

2. Applicability of the Second Proviso to Section 10(10C) of the Income-tax Act:
The court examined the second proviso to Section 10(10C) of the Act, which states that once an exemption is allowed under this section, no exemption shall be allowed for any other assessment year. The court clarified that this proviso only restricts the exemption under Section 10(10C) and does not bar the assessee from claiming relief under Section 89(1). The court emphasized that the proviso aims to prevent misuse of the exemption provision and does not affect the eligibility for relief under Section 89(1).

3. Classification of the Amount Received under the Voluntary Retirement Scheme (VRS):
The court analyzed whether the amount received under the VRS should be classified as "profits in lieu of salary" or as "compensation for loss of employment." The court referred to various judicial interpretations and concluded that the amount received under the VRS is indeed compensation for the termination of employment. The court noted that the amount paid under the VRS has all the characteristics of compensation and should be treated as such for tax purposes.

4. Compliance with Section 192(2A) of the Income-tax Act by the Respondent Bank:
The court considered whether the respondent bank complied with Section 192(2A) of the Act, which requires the employer to grant relief under Section 89(1) upon submission of Form No. 10E by the employee. The court found that the bank correctly exercised its jurisdiction under Section 192(2A) by granting relief under Section 89(1) based on the employees' submissions. The court held that the bank could not be treated as an assessee in default under Section 201(1) for granting this relief.

5. Treatment of the Respondent Bank as an Assessee in Default under Section 201(1) and Section 201(1A) of the Income-tax Act:
The court reviewed whether the respondent bank should be treated as an assessee in default for short deduction of tax at source. The court held that since the bank granted relief under Section 89(1) based on valid submissions by the employees, there was no default or failure on the part of the bank. Consequently, the provisions of Sections 201(1) and 201(1A) were not applicable, and the bank was not liable for any penalty or interest for short deduction of tax.

Conclusion:
The court concluded that the assessee is entitled to both the exemption under Section 10(10C) of the Act and the relief under Section 89(1) of the Act. The amount received under the VRS is classified as compensation for the termination of employment and is eligible for relief under Section 89(1). The respondent bank complied with Section 192(2A) of the Act and cannot be treated as an assessee in default under Sections 201(1) and 201(1A). The appeals filed by the Revenue were rejected, and the court directed the parties to bear their own costs.

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