2005 (2) TMI 462 - AT - Income Tax

Summary

Issues Involved:

1. Entitlement to relief under section 89(1) of the IT Act on the amount received under the Voluntary Retirement Scheme (VRS) after exemption under section 10(10C).
2. Applicability of Instruction No. 1979 and Instruction No. 1985 regarding the monetary limit for filing appeals by the revenue.

Issue-wise Detailed Analysis:

1. Entitlement to Relief under Section 89(1) of the IT Act:

The primary issue in these appeals is whether the assessee is entitled to relief under section 89(1) of the IT Act on the amount received under the Voluntary Retirement Scheme (VRS) after availing of the exemption under section 10(10C). The assessee, a bank employee, received an ex gratia amount of Rs. 8,04,904 upon voluntary retirement and claimed relief under section 89(1) after reducing the exempted amount of Rs. 5,00,000 under section 10(10C). The Assessing Officer denied this relief, arguing that ex gratia payments are discretionary and not equivalent to compensation, which is a matter of right.

The CIT(A) overturned the Assessing Officer's decision, stating that the amount received under VRS constitutes compensation for termination of service and is taxable as profit in lieu of salary under section 17(3). The CIT(A) further clarified that sections 10(10C) and 89(1) are independent and not mutually exclusive, allowing the assessee to claim relief under both sections.

The Tribunal upheld the CIT(A)'s decision, referencing multiple precedents, including the Madras High Court's rulings in CIT v. J. Visalakshi and CIT v. M. Raman, which affirmed that ex gratia payments upon resignation or voluntary retirement qualify for relief under section 89(1). The Tribunal emphasized that the nomenclature of the payment (ex gratia) does not alter its nature as compensation. Therefore, the assessee is entitled to both the exemption under section 10(10C) and the relief under section 89(1).

2. Applicability of Instruction No. 1979 and Instruction No. 1985:

The second issue pertains to the applicability of Instruction No. 1979 and Instruction No. 1985, which set a monetary limit for the revenue to file appeals. According to these instructions, the revenue is prohibited from filing an appeal if the tax effect is less than Rs. 1,00,000. The Tribunal noted that the tax effect in the case of each assessee does not exceed Rs. 1,00,000, thus prohibiting the revenue from filing these appeals.

The Tribunal reiterated that each case must be considered independently for determining the tax effect, and combining cases of multiple assessees for this purpose is not permissible. Consequently, the appeals filed by the revenue were dismissed solely on the ground that the tax effect is below the prescribed monetary limit.

Conclusion:

The Tribunal dismissed all the appeals filed by the revenue, affirming that the assessees are entitled to relief under section 89(1) on the amount received under VRS after availing of the exemption under section 10(10C). Additionally, the appeals were dismissed due to the tax effect being below the monetary limit set by Instruction No. 1979 and Instruction No. 1985.