2007 (12) TMI 260 - AT - Income Tax

Exemption u/s 10(10C) - Voluntary Retirement Payments - Difference of opinion between the Members - Third Member Order - Validity of opinion expressed by the Chartered Accountant - Reserve Bank of India ('RBI') announced VRS known as Optional Employees Retirement Scheme ('OERS') - assessee opted for OERS - Disallowed - as scheme of early retirement did not fulfil guidelines laid down in rule 2BA of the Income-tax Rules - treated as ex gratia and subjected to deduction of tax at source - ld. Judicial Member agreed with the finding of the ld. CIT(A) - HELD THAT - ld. Accountant Member opined that the assessee has fulfilled the conditions laid down in rule 2BA of the Income-tax Rules. He also held that finding of the RBI was based upon the opinion given by M/s. Choksi Co., Chartered Accountants regarding liability of RBI for deduction of tax at source. He was of the opinion that the view taken by the RBI on the opinion of the Chartered Accountants cannot be the sole basis for denying assessee's claim under section 10(10C) of the Act. Accordingly, the ld. AM held that assessee is entitled to exemption under section 10(10C) of the Act. Third Member - ITAT Mumbai Benches has considered similar issue in group cases of 222 assessees who also took Voluntary Retirement from RBI under the same scheme in Vaishali A. Shekar v. Asstt. CIT 2007 (3) TMI 293 - ITAT BOMBAY-K held that; '' Neither the opinion of the Chartered Accountants nor the views of the RBI will finally determine the fate of exemption that is claimed under section 10(10C) but the satisfaction of the conditions or guidelines laid down by the Income-tax Rules, 1962. A plain reading of section and guidelines of Rule 2BA shows that the scheme in question leaves no doubt in our minds that the sums in question are already exempt under section 10(10C) of the Act up to the extent of Rs. 5 lakhs. No contrary decision is brought to my knowledge. Thus, agree with the ld. AM and hold that the assessee is entitled for exemption under section 10(10C) of the Act amounting to Rs. 5 lakhs out of sum of Rs. 13,52,784 received by him on Voluntary Retirement from RBI. The Hon'ble Vice President has concurred with the views of the ld AM. Thus, in accordance with the majority view, the assessee's appeal is allowed.

Summary

Issues Involved:
- Whether the assessee is entitled to exemption under section 10(10C) of the Income-tax Act, 1961, amounting to Rs. 5 lakhs out of the sum received on voluntary retirement from the Reserve Bank of India (RBI).

Detailed Analysis:

1. Facts of the Case:
The assessee, an employee of the RBI, opted for the Optional Employees Retirement Scheme (OERS) and received Rs. 13,52,784. The assessee claimed an exemption of Rs. 5 lakhs under section 10(10C) of the Income-tax Act, 1961. The Assessing Officer denied this exemption based on a letter from the RBI stating that OERS did not fulfill the guidelines laid down in rule 2BA of the Income-tax Rules, 1962.

2. Assessing Officer's Decision:
The Assessing Officer denied the exemption, relying on the RBI's letter dated August 31, 2005, which stated that OERS did not meet the guidelines in rule 2BA. The officer added the Rs. 5 lakhs to the assessee's income under section 17(3) of the Act.

3. Commissioner of Income-tax (Appeals) Decision:
The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's decision, confirming that the scheme did not qualify for exemption under section 10(10C) due to non-compliance with rule 2BA.

4. Tribunal's Analysis:
- Judicial Member's Opinion: The Judicial Member agreed with the lower authorities, emphasizing that the guidelines under rule 2BA are statutory and binding. The Judicial Member held that since OERS did not meet the prescribed guidelines, the exemption could not be granted.
- Accountant Member's Opinion: The Accountant Member disagreed, arguing that the scheme substantially fulfilled the requirements of rule 2BA. He noted that the RBI's letter was based on an opinion from M/s. Choksi and Co., which was primarily concerned with TDS obligations. The Accountant Member cited various Tribunal decisions where similar exemptions were allowed and emphasized the need for consistency in the application of tax laws.

5. Third Member's Decision:
The Third Member, G. D. Agrawal (Vice-President), was called to resolve the difference of opinion. The Third Member reviewed the facts and noted that several Tribunal decisions had allowed similar exemptions for RBI employees under the same scheme. He concluded that the scheme fulfilled the conditions of section 10(10C) read with rule 2BA and held that the assessee was entitled to the exemption.

6. Conclusion:
The majority view, including the Third Member's opinion, was that the assessee is entitled to exemption under section 10(10C) of the Income-tax Act, 1961, amounting to Rs. 5 lakhs out of the sum received on voluntary retirement from the RBI. The appeal was allowed in favor of the assessee.