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2008 (2) TMI 420 - HC - Income TaxExemption voluntary retirement conditions of the scheme - The assessee claimed deduction under section 10(10C) of the Income-tax Act, 1961, for a sum of Rs. 5 lakhs from the benefit received on his voluntary retirement under the scheme called Early Retirement Option Scheme during scrutiny assessment AO demanded the copy of scheme assessee said the scheme was not available and could not produce the same AO denied the exemption before ITAT assessee submitted the scheme and ITAT allowed the exemption accordingly held that - In order to entitle the person the benefit under section 10(10C) of the Act the provisions of section 10(10C) and rule 2BA (Circular No. 640) should be complied with cumulatively and compliance with some of them would not entitle the employee the benefit as claimed for Exemption is not allowed order of ITAT reversed
Issues Involved:
1. Eligibility for deduction under section 10(10C) of the Income-tax Act, 1961. 2. Compliance of the retirement schemes with the criteria laid down in rule 2BA of the Income-tax Rules. Detailed Analysis: Issue 1: Eligibility for Deduction under Section 10(10C) of the Income-tax Act, 1961 The Revenue challenged the Tribunal's decision that granted the deduction under section 10(10C) to employees of ICICI Bank and the Reserve Bank of India (RBI) who retired under specific schemes framed in 2003. The Tribunal had allowed the deduction based on the schemes presented by the employees during the hearing, without verifying if these schemes met the criteria laid down for voluntary retirement schemes. In the case of ICICI Bank, the assessee claimed a deduction of Rs. 5 lakhs under section 10(10C) for the assessment year 2004-05. The Assessing Officer disallowed the claim due to the unavailability of the retirement scheme document. The Commissioner of Income-tax (Appeals) upheld this decision. However, the Tribunal allowed the appeal when the scheme was produced during the hearing. Similarly, for the RBI, the assessee received a cash compensation of Rs. 15,62,960 under the Optional Early Retirement Scheme (OERS) and claimed a deduction of Rs. 5 lakhs under section 10(10C). The Assessing Officer and the Commissioner of Income-tax (Appeals) denied the exemption, but the Tribunal allowed it, referencing a previous decision in favor of a similar claim. Issue 2: Compliance with Rule 2BA of the Income-tax Rules Section 10(10C) of the Income-tax Act provides tax exemption for amounts received under voluntary retirement schemes, provided these schemes comply with guidelines prescribed under rule 2BA. The rule mandates that the scheme should result in an overall reduction in the existing strength of employees and that vacancies caused by voluntary retirement should not be filled. The Court examined the schemes of both ICICI Bank and RBI: - ICICI Bank's Scheme: The scheme was introduced to enhance the competitive environment and to provide an early exit option to employees finding the environment too pressurizing. It was not intended as a staff reduction measure, and vacancies caused by retirements were to be filled through replacements at lower costs. Additionally, the scheme was offered to employees with at least 7 years of service, not the 10 years required by rule 2BA. - RBI's Scheme: The scheme aimed to provide alternative options and benefits to employees seeking early retirement. It was not framed to reduce the existing strength of employees, and the bank did not commit to not filling the vacancies caused by retirements. Both banks communicated to the Department that their schemes did not meet the criteria of rule 2BA. Specifically, they did not ensure that vacancies would not be filled and were not designed to reduce the existing employee strength. Consequently, the schemes did not qualify for the exemption under section 10(10C). Conclusion The Court concluded that for an employee to be entitled to the benefit under section 10(10C), both the provisions of section 10(10C) and rule 2BA must be complied with cumulatively. The schemes from ICICI Bank and RBI did not meet these requirements. Therefore, the Tribunal's orders were set aside, and the appeals were allowed in favor of the Revenue, denying the claimed deductions under section 10(10C).
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