2018 (4) TMI 1131 - HC - Income Tax

Entitlement to exemption u/s 10(10C) - consolidated payment made to the assessee employees under Voluntary Retirement Scheme issued by the ICICI Bank - Held that - The impugned notice specifies the sum of ₹ 1,83,954/- for the assessment year 2004-2005. As per Section 10(10C) of the Act, the individual is entitled to exemption upto ₹ 5,00,000/-. Hon ble Supreme Court in Chandra Ranganathan & Ors. vs. Commissioner of Income Tax 2009 (10) TMI 498 - SUPREME COURT OF INDIA as well as Bombay High Court Commissioner of Income Tax vs. Koodathil Kallyatan Ambujakshan 2008 (7) TMI 259 - BOMBAY HIGH COURT have categorically held that the retiring employees are eligible for exemption under Section 10(10C) of the Act. Rule 2BA of the Income Tax Rules, 1962, cannot exceed the provisions of the Act. Therefore, the demand made by the Income Tax Department is per se illegal and is not sustainable any further. - Decided in favour of assessee.

Summary

Issues:
Challenging demand notice under Income Tax Act, applicability of Section 10(10C) exemption to Voluntary Retirement Scheme, conformity with Rule 2BA of Income Tax Rules, interpretation of judicial precedents regarding exemption eligibility, legality of demand by Income Tax Department.

Analysis:
The petitioner, an employee of ICICI Bank, contested a demand notice from the Income Tax Department related to the Voluntary Retirement Scheme. The scheme's compliance with Section 10(10C) of the Income Tax Act and Rule 2BA of the Income Tax Rules was questioned. Section 10(10C) provides exemptions for amounts received by employees on voluntary retirement or termination, subject to specified conditions. The petitioner argued that the scheme's non-conformity with rules did not negate the employees' entitlement to exemptions.

The case involved a comparison with judicial precedents, notably the Bombay High Court's ruling in Commissioner of Income Tax vs. Koodathil Kallyatan Ambujakshan, which upheld exemption eligibility for retiring employees under Section 10(10C). Additionally, the Supreme Court's decision in Chandra Ranganathan & Ors. vs. Commissioner of Income Tax clarified exemption applicability, overturning a previous order based on an Income Tax Department circular. The Income Tax Department's circular post-Bombay High Court's judgment affirmed exemption eligibility for RBI retiring employees.

Further, a Division Bench decision in Tax Case (Appeal) Nos.1210, 1217, 1249 and 1250 of 2009 set a monetary limit for appeal filing by the Department, affecting cases with tax effects below a specified amount. The petitioner's case, with a demand of ?1,83,954 for a particular assessment year, fell within the exemption limit of ?5,00,000 under Section 10(10C). The court emphasized that Rule 2BA of the Income Tax Rules could not override the Act's provisions.

The court, following the Supreme Court and Division Bench decisions, concluded that the demand by the Income Tax Department was unlawful. The judgment highlighted the finality of previous rulings and dismissed the demand, setting aside the impugned order. The court's decision aligned with judicial interpretations and precedence, ensuring the petitioner's entitlement to exemption under Section 10(10C) of the Income Tax Act.