2006 (10) TMI 519 - HC - Income Tax

Summary

Issues Involved:
1. Whether relief granted u/s 10(10C) of the Income Tax Act, 1961 precludes further relief u/s 89 of the Act.
2. Interpretation of Sections 10(10C) and 89 of the Income Tax Act, 1961 and their applicability to voluntary retirement compensation.

Summary:

Issue 1: Relief under Section 10(10C) and Section 89 of the Income Tax Act, 1961
The primary issue was whether an assessee who has received relief u/s 10(10C) can also claim relief u/s 89 of the Income Tax Act, 1961. The petitioner, who took voluntary retirement from Andhra Bank, received ex-gratia compensation and claimed exemptions u/s 10(10C) and relief u/s 89. The Income-tax Department processed the return u/s 143(1), disallowing the relief claimed u/s 89, leading to a demand. The petitioner's application for rectification u/s 154 and revision u/s 264 were both rejected.

Issue 2: Interpretation and Applicability of Sections 10(10C) and 89
The petitioners argued that compensation received on voluntary retirement is in the nature of profit in lieu of salary and should be eligible for relief u/s 89. They contended that Sections 10(10C) and 89 operate in different areas and are not mutually exclusive. Section 10(10C) deals with exemptions for voluntary retirement compensation, while Section 89 provides relief for salary income under certain circumstances. The respondents argued that Section 10(10C) is a self-contained provision for voluntary retirement compensation and does not allow further relief u/s 89.

Relevant Provisions and Case Law:
- Section 10(10C) provides exemption for compensation received on voluntary retirement up to Rs. 5 lakhs.
- Section 17(3) defines "profits in lieu of salary" to include compensation received on termination of employment.
- Section 89 provides relief when salary is paid in arrears or advance, including profits in lieu of salary.
- Rule 21A(1)(c) specifies conditions for relief u/s 89 for compensation received on termination of employment.

The court examined various judgments, including:
- Sant Raj v. O.P. Singla and K.C. Joshi v. Union of India: These cases involved arrears of salary and were not directly relevant as they did not involve voluntary retirement compensation.
- Commissioner of Income-tax v. Visalakshi: Concerned ex-gratia compensation on resignation, not voluntary retirement.
- Ganti (V.R) v. Commissioner of Income-tax: Involved salary received as ex-gratia, not voluntary retirement compensation.
- Commissioner of Income-tax v. P. Surendra Prabhu: The Karnataka High Court held that Section 10(10C) exemption does not bar relief u/s 89.
- State Bank of Travancore v. Central Board of Direct Taxes: The Kerala High Court held that compensation received on voluntary retirement should be eligible for relief u/s 89.

Conclusion:
The court agreed with the Karnataka and Kerala High Courts, holding that Section 10(10C) provides an exemption, while Section 89 provides relief. The second proviso to Section 10(10C) bars exemption for any other assessment year but does not bar relief u/s 89. The court allowed the writ petitions, quashed the impugned orders, and dismissed the I.T.T.As.