2019 (12) TMI 813 - AT - Income Tax

Disallowance u/s 10(10A)(ii) - assessee had revised his return of income and thereby offered less income than that was shown in the original return - nature of compensation received by the assessee from his employer - HELD THAT - Employer introduced new policy for payment of pension / commuted pension to the employees. As per the said policy, the employer of the assessee had drawn annuity policy for its employees from Life Insurance Corporation of India. Out of the total fund value payable to the assessee, an amount was paid to the assessee on account of Commuted Pension and the balance funds was to be utilized for paying monthly pension after getting relieved from service. Though, the assessee was not immediately retired from the service and continued with the employment with his employer, yet, the basic intent and purpose of the aforesaid payment to the assessee was that of payment towards commuted pension to the employees. Though, generally the retrial benefits are paid on retirement from service, however, under certain circumstances, employment may be continued subject to payment of retrial benefits. The aforesaid payment to the assessee was nothing but the payment of retiral benefits towards Commuted Pension. We, therefore, are of the view that the lower authorities were not justified in disallowing the claim of the assessee u/s 10(10A)(ii). The action of the lower authorities on this account is set aside and the Assessing Officer is directed to allow the claim of the assessee made u/s 10(10A)(ii) of the Act.

Summary

Issues:
1. Disallowance of claim made by the assessee u/s 10(10A)(ii) of the Income Tax Act, 1961.
2. Nature of compensation received by the assessee from the employer.

Analysis:

Issue 1: Disallowance of claim u/s 10(10A)(ii)
The assessee appealed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of the claim made under section 10(10A)(ii) of the Income Tax Act, 1961. The Assessing Officer observed that the assessee received a sum as commuted value of pension from the employer, which the assessee claimed as exempt under section 10(10A)(ii). However, the employer introduced a new retirement policy, and the assessee continued to work with the employer after receiving the compensation. The Assessing Officer disallowed the claim, stating that the employer-employee relationship should have ended for the sum to be treated as pension. The CIT(A) upheld this disallowance. The Tribunal, after considering the facts, held that the payment to the assessee was indeed towards commuted pension, despite the continuation of employment. Therefore, the Tribunal set aside the lower authorities' decision and directed the Assessing Officer to allow the claim under section 10(10A)(ii).

Issue 2: Nature of compensation received
The main issue in the appeal was the nature of the compensation received by the assessee from the employer. The employer introduced a new policy for pension payments, and the assessee received a sum as commuted pension while continuing to work with the employer. The Tribunal noted that the payment was made towards commuted pension, even though the employment continued. The Tribunal found that the intent and purpose of the payment were related to retirement benefits, and the continuation of employment did not alter the nature of the payment. Therefore, the Tribunal concluded that the lower authorities were unjustified in disallowing the claim under section 10(10A)(ii) and allowed the appeal in favor of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, setting aside the disallowance of the claim made under section 10(10A)(ii) of the Income Tax Act, 1961. The decision was based on the nature of the compensation received by the assessee, which was deemed to be towards commuted pension despite the continuation of employment. The Tribunal directed the Assessing Officer to allow the claim, emphasizing the purpose and intent of the payment as retirement benefits.