2014 (7) TMI 1134 - AT - Income Tax

Entitlement to benefit u/s 10(10C) - Held that - As per section 10(10C), the scheme is to be framed as per the guidelines as may be prescribed. Further a perusal of the heading of rule 2BA shows that it prescribes the guidelines for the purpose of section 10(10c). The guidelines, as its nomenclature suggests, are just for the purpose of guidance, while framing the scheme of voluntary retirement by the institutes/companies and cannot be said to be mandatory in nature but only procedural or guiding in nature. If the scheme as a whole, otherwise in accordance with the provisions of section 10(10C) and as per the guidelines under rule 2BA except as to some departures from the guidelines, but not in violation of the guidelines as a whole or of the provisions of section 10(10C), its object and purposes, then, in such an event, merely because the scheme differs at one or two points from the guidelines is not sufficient to deny the benefits granted under the section 10(10C) to an employee in view of the beneficial nature of the provision keeping in view the purpose and object sought to be achieved through such a provision. We, therefore, are of the view that denial of exemption to the assessee only because he has received compensation on his retirement a little more than the limit prescribed by rule 2BA, will be against the spirit of the provisions of the section 10(10C), especially, when no such limit has been prescribed under section 10(10C) and also in view of our observations that provisions of rule 2BA are not mandatory but in the shape of guidelines which are to be taken into consideration while framing the scheme The assessees are entitled to exemption under section (10)(10C) of the Act up to the amount of ₹ 5 lakhs as provided under the relevant provisions of the said section - Decided in favour of assesse.

Summary

Issues:
1. Interpretation of Rule 2BA compliance under sec. 10(10C) by CIT(A).
2. Employer's intention to grant benefit u/s 10(10C) to employee.
3. Violation of clause vi of Rule 2BA by employer.
4. Correct interpretation of clause vi by the assessee.
5. Ambiguity in VRS scheme drafted by the employer.
6. Applicability of decisions from Bombay High Court, Kolkata Tribunal, and others.
7. Liberal interpretation of section 10(10C) and rule 2BA.

Analysis:

1. The appeal involved the interpretation of Rule 2BA compliance under sec. 10(10C) by the CIT(A). The Assessing Officer disallowed exemption u/s 10(10C) to the assessee as the compensation paid exceeded the limits set by clause (vi) of Rule 2BA. The employer confirmed non-compliance with Rule 2BA conditions, leading to the disallowance.

2. The issue of the employer's intention to grant benefits u/s 10(10C) to the employee was raised. The assessee argued that the VRS scheme was tax-compliant and framed in accordance with the provisions of section 10(10C). The employer's scheme was designed to be exempt under section 10(10C), but the Assessing Officer found discrepancies in compliance with Rule 2BA.

3. Violation of clause vi of Rule 2BA by the employer was a key point of contention. The employer's payment to the assessee under VRS exceeded the prescribed limits as per Rule 2BA. The Assessing Officer disallowed the exemption based on this violation, leading to the appeal before the CIT(A).

4. The correct interpretation of clause vi by the assessee was debated. The assessee claimed that the interpretation of the clause was incorrect and that a favorable interpretation should be accepted, especially in cases involving revenue. The CIT(A) upheld the Assessing Officer's decision, leading to the appeal before the ITAT.

5. The ambiguity in the VRS scheme drafted by the employer was highlighted. The assessee argued that the scheme's clauses were in line with section 10(10C) provisions, and any ambiguity should be read in favor of the assessee. Reference was made to the SAIL DSP case from the Calcutta High Court to support this argument.

6. The applicability of decisions from various authorities such as the Bombay High Court, Kolkata Tribunal, and others was crucial. The ITAT considered precedents that emphasized a liberal interpretation of section 10(10C) to encourage voluntary retirement. Decisions from different jurisdictions were cited to support the assessee's claim for exemption under section 10(10C).

7. The ITAT focused on the liberal interpretation of section 10(10C) and rule 2BA. It emphasized that the provisions were beneficial and required a favorable view towards the assessee. The ITAT held that denial of exemption based solely on exceeding the limit prescribed by Rule 2BA would go against the spirit of section 10(10C, especially when no such limit was specified in the section itself. The ITAT allowed the appeal, granting the assessee exemption up to the specified amount under section 10(10C).