1982 (5) TMI 73 - AT - Income Tax

Summary

Issues:
1. Taxability of compensation received on retirement under voluntary retirement scheme.
2. Accrual of compensation in different instalments for tax purposes.

Analysis:
The judgment deals with a Reference Application filed by the CIT, Bombay City XI, seeking a question of law arising from the IT Appellate Tribunal's order regarding the taxability of compensation received on retirement from I.B.M. World Trade Corporation under a voluntary retirement scheme. The key question was whether the entire compensation amount accrued to the assessee and was taxable in the assessment year 1977-78. The assessee, an employee of I.B.M., was offered compensation in three equal instalments over three years upon retirement due to the company's winding up.

The Income Tax Officer (ITO) initially taxed the total compensation amount in one year, rejecting the assessee's claim that the second and third instalments were not due and payable in the assessment year. However, on appeal, the CIT (Appeals) held that the compensation related to the subsequent instalments had not become due or received by the assessee in the assessment year under consideration, thus could not be taxed in that year. The CIT (A) overturned the ITO's decision on this matter.

Subsequently, the IT Appellate Tribunal, upon hearing both parties, concurred with the CIT (A) and found that the compensation for the second and third instalments did not accrue or become payable to the assessee in the relevant assessment year. The Tribunal noted that as per the voluntary retirement scheme, the compensation was payable in three instalments over three years and only the amount related to the first instalment was taxable in the assessment year under consideration. The Tribunal emphasized that this conclusion was based on a factual analysis and did not raise any legal question for reference.

The Tribunal's decision was grounded in the fact that the amounts of compensation for the subsequent instalments did not accrue to the assessee in the relevant assessment year, as per the terms of the retirement scheme. The judgment highlighted that the IT Appellate Tribunal had previously rejected a similar Reference Application from the Department in another case involving an employee of I.B.M. World Trade Corporation. Ultimately, the Reference Application in this case was dismissed, affirming the Tribunal's decision on the taxability of the retirement compensation in different instalments.