2005 (9) TMI 258 - AT - Income Tax

Summary

Issues:
- Interpretation of relief under s. 89(1) of the IT Act, 1961 in addition to exemption under s. 10(10C)
- Whether ex gratia payment on voluntary retirement qualifies as 'termination of employment' under s. 17(3)(i) of the Act
- Entitlement to both exemption under s. 10(10C) and relief under s. 89(1) for VRS payment

Analysis:
1. Interpretation of relief under s. 89(1) and exemption under s. 10(10C): The Department contested the allowance of relief under s. 89(1) by the CIT(A) alongside the exemption under s. 10(10C). The CBDT Instruction F. No. 174/5/2001 was cited to argue against granting relief under s. 89(1) after exemption under s. 10(10C) had been allowed. However, the tribunal noted that there were no specific provisions in the Act restricting the simultaneous availability of these benefits. The tribunal emphasized that relief under s. 89(1) aims to alleviate tax burden, distinct from the exemption under s. 10(10C), and cited principles favoring the assessee in tax law.

2. Qualification of ex gratia payment as 'termination of employment': The tribunal analyzed whether ex gratia payment upon voluntary retirement falls under 'termination of employment' as per s. 17(3)(i) of the Act. It was established that termination of service encompasses various scenarios, not limited to voluntary retirement or superannuation. Citing precedents, the tribunal concluded that ex gratia payment received by the assessee qualifies as profit in lieu of salary under s. 17(3), making the assessee eligible for relief under s. 89(1).

3. Entitlement to both exemptions for VRS payment: The tribunal addressed the question of whether the assessee can claim both exemption under s. 10(10C) and relief under s. 89(1) for VRS payment. The tribunal highlighted the broad definition of 'salary' under s. 17 and the applicability of s. 89 to grant both benefits claimed by the assessee. Citing relevant case law, the tribunal emphasized that the issue had been debated in various High Courts, indicating its debatable nature. Consequently, the tribunal upheld the CIT(A)'s decision to allow relief under s. 89(1) alongside the exemption under s. 10(10C) for the ex gratia payment, dismissing the Revenue's appeal.