2018 (7) TMI 1730 - HC - Income Tax

Exemption under Section 10(10C) - Voluntary Retirement Scheme issued by the ICICI Bank - Held that - The impugned notice specifies the sum of 1, 95, 600/- for the assessment year 2004-2005. As per Section 10(10C) of the Act the individual is entitled to exemption upto 5, 00, 000/-. The Hon ble Supreme Court as well as Bombay High Court have categorically held that the 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 As discussed above the matter has attained finality in Commissioner of Income Tax vs. Koodathil Kallyatan Ambujakshan (2008 (7) TMI 259 - BOMBAY HIGH COURT) and the same stands confirmed by the Hon ble Supreme Court in Chandra Ranganathan Ors. vs. Commissioner of Income Tax Chennai 2009 (10) TMI 498 - SUPREME COURT OF INDIA - Decided in favour of assessee

Summary

Issues:
Challenging the demand notice issued by the Income Tax Department regarding the Voluntary Retirement Scheme and exemption under Section 10(10C) of the Income Tax Act, 1961.

Analysis:

1. Exemption under Section 10(10C) of the Income Tax Act:
The petitioner, an employee of ICICI Bank, received a consolidated payment under the Voluntary Retirement Scheme. The dispute arose regarding the conformity of the Scheme with Rule 2BA of the Income Tax Rules, 1962. The Income Tax Department contended that the Scheme did not comply with the Rules, thus denying employees the exemption under Section 10(10C) of the Act.

2. Judicial Scrutiny and Precedents:
The Voluntary Retirement Scheme was subject to judicial scrutiny in light of Rule 2BA. Various High Courts had different views on similar schemes. The Bombay High Court's judgment in Commissioner of Income Tax vs. Koodathil Kallyatan Ambujakshan established that the exemption under Section 10(10C) applied to employees benefiting from the Scheme. The Income Tax Department did not appeal this decision, leading to its finality. However, the Supreme Court in Chandra Ranganathan & Ors. vs. Commissioner of Income Tax, Chennai set aside a Madras High Court order based on the circular issued by the Department.

3. Finality of Decisions:
Following the Bombay High Court's judgment, the Income Tax Department issued a circular granting exemption to retiring RBI employees. In a separate case, the Division Bench held that if the tax effect was below a certain limit, the Department need not file an appeal. The Supreme Court and Bombay High Court had unequivocally ruled that employees were eligible for exemption under Section 10(10C), rendering the Department's demand illegal.

4. Court Decision and Conclusion:
The High Court upheld the decisions of the Supreme Court and Division Bench, declaring the Income Tax Department's demand unsustainable in law. The writ petition was allowed, setting aside the impugned order. The Court followed the precedents and dismissed the demand. No costs were awarded, and the connected Miscellaneous Petition was closed.