2006 (2) TMI 256 - AT - Income Tax

Summary

Issues Involved:
1. Whether the sum paid under the Voluntary Retirement Scheme (VRS) is exempt from being charged to tax under section 10(10C) of the Income-tax Act, 1961, even if the payment is made in installments and the same are paid in subsequent years.

Detailed Analysis:

1. Exemption under Section 10(10C) for VRS Payments Made in Installments:

The primary issue in these appeals is whether the sum paid under the Voluntary Retirement Scheme (VRS) is exempt from being charged to tax under section 10(10C) of the Income-tax Act, 1961, even if the payment is made in installments and the same are paid in subsequent years.

Facts of the Case:
The assessee received more than Rs.5,00,000 as voluntary retirement compensation in two installments, first in the year of retirement (August 1999) and second in the following year. The assessee claimed exemption under section 10(10C) for Rs.5,00,000 over these two years and offered the balance sum for the assessment year 2001-02. The Assessing Officer disallowed the claim for the second installment.

Appeal to Commissioner of Income-tax (Appeals):
The assessee argued that the second installment was part of the same VRS scheme and did not exceed the permissible limit of Rs.5,00,000. The Commissioner of Income-tax (Appeals) held that the second proviso to section 10(10C) unambiguously states that exemption allowed in one assessment year cannot be allowed in relation to any other assessment year.

Tribunal's Analysis and Judgment:
The Tribunal examined the provisions of section 10(10C) and the second proviso. It considered the arguments of both sides and referred to the case law of the Hon'ble Calcutta High Court in SAIL DSP VR Employees Association 1998 v. Union of India [2003] 262 ITR 638, which interpreted the second proviso to section 10(10C). The Tribunal noted that the amount payable under VRS, even if stretched over multiple years, is exempt under section 10(10C) if it does not exceed Rs.5,00,000 and is received from the same employer under the same scheme.

Key Legal Provisions and Interpretations:
- Section 10(10C) provides exemption for any amount received or receivable by an employee under VRS, subject to a limit of Rs.5,00,000.
- The second proviso to section 10(10C) states that exemption allowed in one assessment year cannot be allowed in any other assessment year.
- The Finance Act, 2003, amended section 10(10C) to include amounts "receivable," clarifying that payments in installments are covered.
- The Tribunal referred to the CBDT Circular No. 7 of 2003 and the memo explaining the provisions of the Finance Bill, 2003, which aimed to solve the problem of employees receiving VRS compensation in installments.

Conclusion:
The Tribunal concluded that the sum received under VRS, even if paid in installments over multiple years, is exempt under section 10(10C) up to the limit of Rs.5,00,000. The intention of the Legislature, as clarified by the Finance Act, 2003, and the CBDT Circular, supports this interpretation. The Tribunal allowed the assessee's claim and reversed the orders of the lower authorities.

Result:
The appeals of the assessee were allowed.