2009 (6) TMI 65 - HC - Income Tax

Retrospective application of amendment to section 10(10C) ITAT allowed the claim of the assessee for exemption under section 10(10C) of the Income-tax Act, 1961 (for short the Act ) to the extent of Rs. 5,00,000 by applying the prospective amendment retrospectively held that - salary or benefit in lieu of salary payable to an employee opting for voluntary retirement is chargeable to tax under section 15(a) as soon as it became due, though not paid. The amount so received is exempted from being charged to tax to the extent of Rs. 5,00,000 by the reason of section 10(10C) of the Act. Even if the payment is stretched over a period of years, the same would not become chargeable to tax in any subsequent assessment year decided in favor of assessee revenue s appeal dismissed.

Issues Involved:
1. Whether the Income-tax Appellate Tribunal was justified in directing the Assessing Officer to allow the claim of the assessee for exemption under section 10(10C) of the Income-tax Act, 1961, to the extent of Rs. 5,00,000 by applying the prospective amendment retrospectively.
2. Interpretation and applicability of section 10(10C) of the Income-tax Act, 1961, before and after the amendment in 2003.
3. Whether the amount received in instalments under a voluntary retirement scheme qualifies for exemption under section 10(10C) of the Act.

Issue-wise Detailed Analysis:

1. Justification of the Tribunal's Direction:
The core issue was whether the Tribunal was justified in directing the Assessing Officer to allow the assessee's claim for exemption under section 10(10C) of the Income-tax Act, 1961, to the extent of Rs. 5,00,000, by applying the prospective amendment retrospectively. The Tribunal's decision was based on the interpretation that the amendment made by the Finance Act, 2003, which added the words "or receivable" after "received," was clarificatory and curative in nature. This interpretation allowed the exemption to be applied to amounts receivable in subsequent years, even if the voluntary retirement occurred before the amendment came into effect on April 1, 2004.

2. Interpretation and Applicability of Section 10(10C):
Before the amendment in 2003, section 10(10C) of the Act exempted any amount received by an employee at the time of voluntary retirement, subject to a maximum of Rs. 5,00,000. The amendment added the words "or receivable," which clarified that amounts receivable in instalments over subsequent years also qualified for exemption. The court noted that tax laws should be interpreted reasonably and in favor of the assessee, especially when the provision aims to make voluntary retirement schemes attractive. The court also referred to the Departmental Circular No. 7/2003, which addressed the issue faced by employees receiving VRS amounts in instalments and clarified that the exemption applies to amounts receivable as well.

3. Exemption for Amounts Received in Instalments:
The court examined whether amounts received in instalments under a voluntary retirement scheme qualify for exemption under section 10(10C). It was emphasized that section 15(a) of the Act provides for the chargeability of salary to tax as soon as it becomes due, even if not paid. Therefore, the liability to pay under the VRS scheme is incurred when the employee is released, making the amount receivable at that time. The court held that the amount receivable under the VRS scheme, even if paid in instalments, qualifies for exemption under section 10(10C) to the extent of Rs. 5,00,000. This interpretation ensures that the benefit of exemption is not restricted to the amount actually received in the year of retirement but extends to the total amount receivable under the scheme.

Conclusion:
The court concluded that the Tribunal was justified in directing the Assessing Officer to allow the assessee's claim for exemption under section 10(10C) to the extent of Rs. 5,00,000, even if the amount was receivable in instalments. The amendment made by the Finance Act, 2003, was deemed clarificatory and curative, and the exemption applies to amounts receivable in subsequent years. Consequently, the appeals were dismissed, and the Tribunal's decision was upheld.

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