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2007 (3) TMI 293 - AT - Income TaxExemption u/s 10(10C) - Consideration received by the employees who opted for Optional Early Retirement Scheme (OERS) - employees of other public sector banks which introduced Voluntary Retirement Scheme (VRS) for the benefit of the employees - exemption upto Rs.5 lacs - relief u/s 89 - HELD THAT - The records produced before us does not show that the vacancies as a result of OERS has been filed by the bank. As the bank itself in its Annual Report states that there has been considerable reduction in staff strength as the result of the options exercised under the OERS we do not accept the contention of the department that the relief to the employees be denied on the ground that the bank has not given any undertaking that the vacancy will not be filled up and it is also not the specific requirement of the guidelines. We have read the entire scheme and do not find any obligation on the part of the RBI the employer to show any alternative opportunities to the persons who have opted under the OERS. In other words no evidence or material has been brought before us to show that there has been an obligation on the part of the RBI to employ the retiring employees in any other company or concerns under the same management. We therefore on the basis of the scheme and the actual facts that are brought out by the bank itself do not agree with the stand of the Assessing Officer or the CIT(A) that the conditions or the guidelines prescribed under rule 2BA are not complied in the OERS of the RBI. Any statement that it will not fill up the vacancies caused as a result of OERS would have resulted in opposition by the employees themselves as it will be a repressive measure against the labour. The sums in question are clearly the part of salary in the form of profits in lieu of salary as defined in section 17(3) of the Act. These are amount of compensation received by the employee from the employer in connections with the terms of employment and therefore the assessees in question are clearly entitled for relief under section 89 in accordance with law in respect of the payments that are included in the total income. Further a similar view has been expressed in the decision of the Hon ble Madras High Court in the case of CIT v. G.V. Venugopal 2004 (12) TMI 35 - MADRAS HIGH COURT and the decision of the Hon ble Karnataka High Court in CIT v. P. Surendra Prabhu 2005 (9) TMI 67 - KARNATAKA HIGH COURT . The orders of the CIT(A) in granting relief u/s 89 cannot be therefore found fault with. As a result we hold- (a) that the assessees in question are entitled for relief u/s 10(10C) of the Income-tax Act in respect of the sums received under the OERS up to a sum of Rs. 5 lakhs. (b) the assessees are also entitled to relief u/s 89 of the Act in respect of the sums which are in excess of the exemption granted. In the result the appeals filed by the assessee are treated as allowed and those filed by the department are dismissed on the lines discussed above.
Issues Involved:
1. Entitlement to exemption under Section 10(10C) of the Income Tax Act. 2. Entitlement to relief under Section 89 of the Income Tax Act. Detailed Analysis: Issue 1: Entitlement to Exemption under Section 10(10C) of the Income Tax Act The primary issue was whether the assessees, employees who opted for the Optional Early Retirement Scheme (OERS) from the Reserve Bank of India (RBI), were entitled to exemption under Section 10(10C) of the Income Tax Act. The scheme was designed for employees who had completed 25 years of service and were over 50 years of age. The RBI paid these employees an ex gratia amount upon retirement, which the assessees claimed as exempt under Section 10(10C) up to Rs. 5,00,000. The Assessing Officer (AO) denied this exemption based on a clarification from the RBI, which stated that the OERS did not comply with Rule 2BA of the Income Tax Rules, 1962. This rule requires that the scheme should result in an overall reduction of the workforce and that the vacancies caused by the retirement should not be filled. The AO's decision was based on the RBI's admission that it had not confirmed whether the vacancies would be filled. The Tribunal examined the conditions under Section 10(10C) and Rule 2BA. It noted that the scheme was indeed aimed at reducing the workforce due to technological upgrades and computerization, which led to a significant reduction in staff numbers. The Tribunal found that the scheme met the conditions laid down in Rule 2BA, as the reduction in workforce was evident from the annual reports of the RBI. The Tribunal also referred to the Calcutta High Court's decision in the case of Sail DSP VR Employees Association 1998 vs. Union of India, which emphasized that Section 10(10C) should be interpreted in a manner beneficial to the employees opting for voluntary retirement. The Court highlighted that the legislative intent was to make voluntary retirement schemes attractive to reduce human complements for economic viability. Based on these findings, the Tribunal concluded that the assessees were entitled to exemption under Section 10(10C) for amounts up to Rs. 5,00,000 received under the OERS. Issue 2: Entitlement to Relief under Section 89 of the Income Tax Act The second issue was whether the assessees were entitled to relief under Section 89 of the Income Tax Act for the ex gratia amounts received in excess of Rs. 5,00,000. Section 89 provides relief when salary is paid in arrears or in advance, resulting in a higher tax rate than would otherwise apply. The AO had denied this relief, arguing that the ex gratia payment did not qualify as arrears of salary. However, the Tribunal found that the amounts received were indeed part of the salary in the form of profits in lieu of salary as defined under Section 17(3) of the Act. Therefore, the assessees were entitled to relief under Section 89 for the amounts exceeding the exempted Rs. 5,00,000. The Tribunal referred to the decisions of the Madras High Court in CIT vs. G.V. Venugopal and the Karnataka High Court in CIT vs. P. Surendra Prabhu, which supported the view that such ex gratia payments qualify for relief under Section 89. Conclusion: The Tribunal held that: 1. The assessees were entitled to exemption under Section 10(10C) of the Income Tax Act for the amounts received under the OERS up to Rs. 5,00,000. 2. The assessees were also entitled to relief under Section 89 of the Income Tax Act for the amounts exceeding Rs. 5,00,000. Thus, the appeals filed by the assessees were allowed, and those filed by the Department were dismissed.
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