2012 (9) TMI 19 - HC - Income Tax

Rejection of exemption u/s 10(10C) - assessee retire under the Voluntary Retirement Scheme (VRS) of the SBI - circular dated 6th October 2009 offering Exit Option Schemes to employees clearly lay out ineligible for deduction under section 10(10C) - Held that - The said circular merely contains instructions to the authorities to decide the question of eligibility under Section 10(10C) in accordance with law namely the provisions of the Act the rules made thereunder and all other legal principles including the doctrine of precedent and does not prohibit the authorities from discharging their functions under the Act. It appears that some officers have wrongly considered themselves bound by the circular to the extent of their being required to reject the application under Section 10(10C) merely on the basis thereof and without considering whether in law the assessees are entitled to exemption in view of their having opted for the scheme. This it is clear therefore that the CIT(A) did not consider the matter on merits. He did not consider the provisions of the Act and the Rules. He merely considered himself bound by the circular and construed the circular as directing him to hold the assessee ineligible for exemption under Section 10(10C) - thus the authorities shall decide the question of exemption under Section 10(10C) without being influenced by the impugned circular dated 6th October 2009 in any manner whatsoever - in favour of assessee.

Issues Involved:
1. Challenge to the circular dated 6th October, 2009.
2. Eligibility for exemption under Section 10(10C) of the Income Tax Act, 1961.
3. Interpretation and application of the "Staff Supervising Exit Option Scheme" and "Staff Award Exit Option Scheme" by the State Bank of India.
4. Authority of the CBDT circulars and their binding nature on assessing officers.
5. Judicial precedents and their applicability to similar schemes.

Detailed Analysis:

1. Challenge to the Circular Dated 6th October, 2009:
The petitioner, a society registered under the Societies Registration Act, challenged the circular issued by the first respondent, which directed field offices to examine cases where employees claimed exemption under Section 10(10C) despite the schemes stating they were not eligible for such exemption. The petitioner sought orders to direct the Chief Commissioner/Officers to follow the appellate authorities' decisions that the VRS schemes were entitled to exemption under Section 10(10C) of the Income Tax Act, 1961.

2. Eligibility for Exemption under Section 10(10C) of the Income Tax Act, 1961:
The petitioner argued that the circular directed authorities to proceed on the basis that employees availing the scheme would not be eligible for deduction under Section 10(10C). However, it was contended that the authorities must decide eligibility based on the provisions of the schemes and the Act. The court noted that some authorities construed the circular as a mandatory order to deny the benefit of Section 10(10C), which was incorrect.

3. Interpretation and Application of SBI's Exit Option Schemes:
The State Bank of India had two schemes: the "Staff Supervising Exit Option Scheme" and the "Staff Award Exit Option Scheme." Both schemes indicated that the ex-gratia payments would be added to the employee's income, and income tax would be deducted at the applicable rate. However, the court noted that the schemes' provisions were not material to determining the assessee's eligibility for exemption under Section 10(10C).

4. Authority of CBDT Circulars and Their Binding Nature:
The court observed that the authorities under the Act must decide eligibility based on the Act, rules, and legal principles, without being influenced by the circular. The court highlighted instances where authorities wrongly considered themselves bound by the circular to reject exemption claims under Section 10(10C). The court clarified that the circular did not prohibit authorities from discharging their functions under the Act.

5. Judicial Precedents and Their Applicability:
The court referred to the judgment in Commissioner of Income Tax v. Koodathil Kallyatan Ambujakshan, which was affirmed by the Supreme Court in Chandra Ranganathan and ors. v. Commissioner of Income Tax. The court noted that the CBDT had issued instructions allowing RBI employees the benefit of Section 10(10C) based on a similar scheme. The petitioner argued that similar instructions should be issued for SBI employees. The court requested the CBDT to consider the matter and issue appropriate instructions.

Conclusion:
The court disposed of the petition by accepting the respondents' statement that the circular did not prohibit authorities from considering eligibility under Section 10(10C) in accordance with law. The court clarified that authorities should decide the question of exemption without being influenced by the circular and should not take further steps based on the circular alone. The CBDT was requested to consider issuing instructions similar to those issued for RBI employees.

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