2008 (7) TMI 259 - HC - Income Tax

Whether Tribunal was justified in holding that the amount received by the assessee under Optional Early Retirement Scheme of RBI is eligible for exemption u/s 10(10C) assessee s submission that scheme satisfies all the requirement of both section 10(10C) as also Rule 2BA is acceptable therefore amounts upto 5 lakh entitlesd to exemption u/s 10 (10C) - and for the amount in excess of Rs. 5 lac the assessee would be entitled to the benefits u/s 89 in addition to the benefits u/s 10(10C)

Summary

Issues Involved:
1. Eligibility of the amount received under the "Optional Early Retirement Scheme of Reserve Bank of India" for exemption under section 10(10C) of the Income Tax Act.
2. Interpretation of Rule 2BA in favor of the assessee.
3. Allowance of relief under section 89(1) of the Income Tax Act for the sum received under the VRS exceeding Rs. 5,00,000.
4. Justification of relief under section 89(1) when the employer has not determined the amount of ex gratia and the financial years to which it pertained.

Issue-Wise Detailed Analysis:

1. Eligibility for Exemption under Section 10(10C):
The Revenue argued that employees benefiting from the RBI's "Optional Early Retirement Scheme" (OERS) are not entitled to exemptions under section 10(10C) of the Income Tax Act, citing Rule 2BA. The Assessing Officer, supported by the Central Board of Direct Taxes (CBDT) instructions, held that the OERS did not conform to Rule 2BA and thus did not qualify for exemption. However, the Tribunal found that the OERS satisfied the requirements of section 10(10C) and Rule 2BA, noting that the scheme led to a reduction in staff strength and that vacancies caused by early retirement were not filled. The Tribunal's findings were upheld, confirming that the scheme impliedly met all necessary conditions, thus qualifying for the exemption.

2. Interpretation of Rule 2BA:
The Tribunal and the Commissioner of Income-tax (Appeals) found that the OERS met the conditions set out in Rule 2BA, which include requirements such as a minimum service period, applicability to all employees, and that the scheme results in an overall reduction in employee strength. The Tribunal noted that the scheme was designed to address surplus staff due to technological upgrades and restructuring within the RBI, which implied compliance with Rule 2BA. The court agreed with this interpretation, emphasizing that the scheme's implied terms should be read in harmony with the substantive provisions of the Act.

3. Relief under Section 89(1) for Amount Exceeding Rs. 5,00,000:
The Tribunal allowed relief under section 89(1) for sums received under the VRS exceeding Rs. 5,00,000, despite the Revenue's contention that such relief was not prescribed under section 89(1) or Rule 2BA. The court referenced the judgment in Commissioner of Income Tax vs. Nagesh Devidas Kulkarni, where it was established that the assessee is entitled to benefits under section 89 for amounts exceeding the Rs. 5,00,000 limit. The CBDT's acceptance of this judgment further supported the Tribunal's decision, confirming that the assessee is entitled to relief under section 89(1) in addition to section 10(10C) benefits.

4. Justification of Relief under Section 89(1) without Employer's Determination:
The Revenue argued that the Tribunal erred in allowing relief under section 89(1) when the employer had not specified the ex gratia amount and the financial years it pertained to. However, the court found that the Tribunal's decision was consistent with the established legal precedent and the CBDT's acceptance of the relevant judgment. The court concluded that the relief under section 89(1) was justified, even in the absence of specific determinations by the employer, as the overall scheme and the conditions set out in section 10(10C) and Rule 2BA were satisfied.

Conclusion:
The appeal was dismissed, affirming that the amount received under the RBI's OERS is eligible for exemption under section 10(10C) of the Income Tax Act, and that relief under section 89(1) is applicable for sums exceeding Rs. 5,00,000. The court upheld the Tribunal's interpretation of Rule 2BA and the application of the relevant legal provisions, emphasizing the scheme's compliance with the statutory requirements and the implied terms necessary to achieve the legislative intent.