2007 (11) TMI 370 - HC - Income Tax

Voluntary Retirement Scheme under section 10(10C) and 89 Exemption 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:
1. Deduction of ex gratia payment under Voluntary Retirement Scheme (VRS) above exemption under section 10(10C) of the Income-tax Act, 1961.
2. Admissibility of relief under section 89 of the Income Act on VRS amount exceeding the exemption under section 10(10C).

Issue 1: Deduction of Ex Gratia Payment under VRS:
The Appellate Assistant Commissioner allowed deduction of ex gratia payment received under the Voluntary Retirement Scheme (VRS) over and above the exemption provided in section 10(10C) of the Income-tax Act, 1961. The Revenue challenged this decision before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur. The Tribunal referred to various judgments, including those of the Madras High Court and the Jaipur Bench, supporting the view that VRS amount constitutes compensation for "termination of service" under section 17(3) and that relief under section 89(1) is applicable after reducing the exemption under section 10(10C).

Issue 2: Admissibility of Relief under Section 89 on VRS Amount:
In a separate case before the Rajasthan High Court, the question arose whether relief under section 89 of the Income Act is admissible on the VRS amount exceeding the exemption under section 10(10C). The assessee had taken voluntary retirement and received an amount from the employer at the time of retirement. The Revenue contended that the assessee was not entitled to relief under section 89 due to a specific order by the Board and the absence of section 10(10C) at the time of a previous judgment. However, the Court held that the VRS amount falls under section 17(3)(i) as "profits in lieu of salary" and termination of employment through voluntary retirement qualifies for relief under section 89, irrespective of the exemption under section 10(10C). The Court emphasized that the relief under section 89 serves a different purpose and cannot be denied based on the exemption under section 10(10C).

The judgments referred to by the courts, including those of the Madras High Court and the Delhi High Court, established the interpretation of sections 89(1), 17(3), and the applicability of relief under section 89 on VRS amounts exceeding the exemption limit under section 10(10C). The decisions highlighted the beneficial nature of these provisions to grant benefits to employees and confirmed that VRS amounts are considered compensation for "termination of service," making them eligible for relief under section 89. The courts rejected the Revenue's arguments against granting relief under section 89 based on specific orders and previous judgments, affirming the entitlement of employees to claim relief on VRS amounts exceeding the exemption limit.