2007 (10) TMI 362 - HC - Income Tax

Voluntary Retirement under section 10(10C), 89 Exemption The amount received by the assessee on voluntary retirement is covered by section 17(3)(i) of the Income Tax Act, 1961. In this case Rajasthan High Court on the basis of the findings of the Tribunal held that assessee is entitled to relief under section 89 as relief under section 89 is entirely different exemption under section 10(10C). The appeal is dismissed. Decision in favor of assessee against the revenue

Summary

Issues:
Interpretation of section 17(3)(i) of the Income-tax Act, 1961 in relation to compensation received on voluntary retirement, applicability of section 10(10C) exemption, eligibility for relief under section 89, relevance of section 35DDA, consistency with Madras High Court judgment.

Analysis:

The Division Bench of the Rajasthan High Court in the case discussed the interpretation of section 17(3)(i) of the Income-tax Act, 1961, concerning compensation received on voluntary retirement. It was held that the amount received by the assessee on voluntary retirement falls under the category of 'profits in lieu of salary,' as per section 17(3)(i). The court emphasized that cessation of employment due to voluntary retirement constitutes termination of employment, and any compensation received in connection with it is covered under 'profits in lieu of salary.'

The Revenue's argument relied on a letter from the Central Board of Direct Taxes, which stated that amounts up to Rs. 5 lakhs received under a voluntary retirement scheme were exempt under section 10(10C). However, the court noted that relief under section 89 of the Income-tax Act is distinct from the exemption under section 10(10C). The court clarified that an assessee is entitled to benefit under section 89 irrespective of the exemption under section 10(10C), as these provisions serve different purposes and should not be conflated.

The court also examined the applicability of section 35DDA of the Income-tax Act, stating that it pertains to the amortization of expenditure by the employer under a voluntary retirement scheme and does not apply to amounts received by employees in connection with voluntary retirement. The judgment highlighted the Madras High Court's decision in a similar case, affirming that compensation received by an employee on voluntary retirement is considered salary, making the employee eligible for relief under section 89 of the Income-tax Act.

Ultimately, the court dismissed the appeal, noting that the controversy raised in the income-tax appeal was conclusively addressed by the previous judgment discussed in the case. The legal position elucidated by the Madras High Court regarding compensation on voluntary retirement remained unchanged despite the provisions of section 10(10C). Therefore, the finding that the assessee was entitled to relief under section 89 on the voluntary retirement scheme amount exceeding Rs. 5 lakhs exempted under section 10(10C) was upheld as correct.