2022 (11) TMI 904 - AT - Income Tax

Exemption from tax - disability pension - Defence Forces Personnel / Indian Air Force - assessee had taken pre-mature retirement at his own request, before disability - HELD THAT - As in the instant case that at the time of disbursement of amount, no TDS has been deducted in the case of assessee and from careful perusal of the order of the Hon ble Supreme Court it is noticed that the Hon ble Supreme Court directed the respondents to maintain status quo in the matter. The Circular issued by the CBDT as well as in the Circular of Principal Controller of Defence Accounts (Pensions) in which it is clearly stated that tax exemption shall be available to the Defence Forces Personnel who have been invalidated from service on account of bodily disability while in service. Since the Ld. D.R. has failed to furnish any contrary material or decision of any higher Judicial Forum to the notice of Bench, we allow the claim of assessee and direct the A.O. to delete the addition. Accordingly, appeal of the assessee is allowed.

Issues:
1. Exemption of disability pension from tax.
2. Validity of addition made by the Assessing Officer.
3. Consideration of Circulars and Supreme Court order in tax assessment.

Exemption of disability pension from tax:
The case involved the assessment of an individual who had claimed a disability pension as exempt income in the revised return of income for the assessment year 2017-18. The Assessing Officer (A.O.) added back the disability pension amount to the taxable income, as the individual had taken premature retirement at his own request, and the disability was not the reason for retirement. The A.O. determined the total income of the individual at a higher amount than declared, leading to a dispute regarding the taxability of the disability pension.

Validity of addition made by the Assessing Officer:
The individual, aggrieved by the A.O.'s order, appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre, Delhi. The CIT(A) confirmed the addition made by the A.O., leading to further appeal before the Tribunal. The individual challenged the addition on the grounds that the disability pension should not be taxable and that the authorities failed to appreciate this aspect.

Consideration of Circulars and Supreme Court order in tax assessment:
During the appeal before the Tribunal, the individual's counsel presented various documents, including a Circular by the Central Board of Direct Taxes (CBDT) and a Circular by the Principal Controller of Defence Accounts (Pensions), to support the exemption of disability pension for Defence Forces Personnel. The counsel also referred to an interim stay order of the Supreme Court in a related case. The Departmental Representative (D.R.) argued that the individual was not disabled while in service and had voluntarily retired, making the Circulars and Supreme Court order inapplicable.

In its judgment, the Tribunal considered the submissions, orders of the lower authorities, and the documents presented. The Tribunal noted that no TDS was deducted at the time of disbursement of the disability pension. It observed the Supreme Court's direction to maintain status quo in a related matter and the Circulars exempting disability pension for Defence Forces Personnel invalidated from service due to bodily disability while in service. Since the D.R. failed to provide contrary material or higher judicial decisions, the Tribunal allowed the individual's claim and directed the A.O. to delete the addition, ultimately allowing the appeal.

The Tribunal's decision focused on the interpretation of tax laws regarding the exemption of disability pension, considering the individual's retirement circumstances and the relevant Circulars and Supreme Court order. The judgment emphasized the importance of specific conditions for tax exemptions and the need for proper documentation and legal support in tax assessments.

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