2021 (1) TMI 414 - HC - Income Tax

Entitled to claim deduction u/s 10 (10 C) (viii) and also under Section 89 (1) - amounts received as part of VRS - appellant admittedly took voluntary retirement in the year 2001 - claim came to be rejected on the basis of the instructions/letter issued by the Central Board of Direct Taxes on 23-04-2001 - HELD THAT - It is not disputed before us that the said instructions/letter of the Central Board of Direct Taxes has been quashed by this Court in State Bank of India 2005 (12) TMI 64 - KERALA HIGH COURT . Still further this Court has, in the said decision, categorically declared that amounts received by an employee under a VRS Scheme were entitled to deduction under Section 10 (10C) (viii) and relief under Section 89 (1) of the Income Tax Act, simultaneously. That being the position the entire proceedings initiated against the petitioner becomes one without jurisdiction. Therefore, when the proceedings are found to be without jurisdiction the existence of an alternative remedy is not a bar for granting relief under Article 226 of the Constitution of India. It becomes our duty to grant relief when we are convinced that the proceedings are without jurisdiction. We accordingly set aside the judgment of the learned Single Judge. Applying the principle in Calcutta Discount Company (supra), we quash Exts.P1, P4 P6 and hold that the appellant was entitled to claim deduction under Section 10 (10C) (viii) of the Income Tax Act and relief under Section 89 (1) (as the provision stood at the relevant point of time) in respect of amounts received by him under the voluntary retirement scheme. We direct that if any amounts have been paid by the appellant pursuant to demands which arose on account of denial of deduction under Section 10 (10C) (viii) and relief under Section 89 (1) of the Income Tax Act, such amounts shall be refunded to the appellant .

Summary

Issues:
Challenge to judgment on deduction under Section 10(10C) and Section 89(1) of Income Tax Act for amounts received under Voluntary Retirement Scheme.

Analysis:
The appellant received amounts under a Voluntary Retirement Scheme (VRS) from the employer and claimed deduction under Section 10(10C) (viii) and Section 89(1) of the Income Tax Act for the assessment year 2001-2002. The assessing officer disputed the claim, leading to the appellant seeking revision under Section 264, which was initially rejected. A Division Bench judgment later clarified that VRS amounts were eligible for relief under Section 89(1) in addition to the exemption under Section 10(10C) (viii). The appellant then filed a petition seeking rectification, which was also initially rejected. Subsequently, a writ petition was filed challenging the rejection, with the Single Judge directing the appellant to file an appeal before the Commissioner of Income Tax (Appeals) under Section 246A. The appellant appealed this decision, arguing that the issue was already decided in their favor by the Division Bench judgment.

The Department contended that the original order by the Commissioner of Income Tax was justified and that the appellant had the option to appeal under Section 246A. However, they acknowledged that the legal position post the Division Bench judgment favored the appellant's claim for deduction and relief under the Income Tax Act. The Court considered these arguments and held that the appellant need not have been directed to pursue an alternative remedy of filing an appeal. The Court emphasized that the appellant was entitled to the deductions claimed under the relevant provisions of the Income Tax Act, as clarified by the Division Bench judgment. Citing the case of Calcutta Discount Company Ltd. v. Income Tax officer, the Court highlighted that the existence of an alternative remedy does not bar granting relief under Article 226 of the Constitution when proceedings are found to be without jurisdiction. Consequently, the Court set aside the Single Judge's judgment, quashed the previous orders, and directed refund of any amounts paid by the appellant due to the denial of deductions under Section 10(10C) (viii) and relief under Section 89(1) within a specified timeframe. The Court appreciated the fair submissions of the Income Tax Department and allowed the writ appeal without costs.