2008 (6) TMI 335 - HC - Income Tax

Exemption under section 10(10C) Sum received on voluntary retirement Amount received under OERS Scheme of RBI. The scheme was not contrary to rule 2BA. To attaract section 10(10C), the requisites of rule 2BA are to be complied with. Held that- the orders of the Tribunal / Commissioner (Appeals) in favour of the assessees, which had assumed finality, were certainly binding on the Assessing Officer. The writ petition is allowed

Summary

Issues Involved:
1. Entitlement to tax exemption under Section 10(10C) of the Income-tax Act, 1961, for compensation received under the Optional Early Retirement Scheme (OERS) introduced by the Reserve Bank of India (RBI).
2. Validity of reassessment proceedings initiated by the Assessing Officer under Section 147/148 of the Income-tax Act, 1961.
3. Conformity of the OERS with Rule 2BA of the Income-tax Rules, 1962.
4. Binding nature of prior judicial decisions on the Assessing Officer.
5. Alleged violation of Article 14 of the Constitution of India due to discriminatory treatment of RBI employees.

Detailed Analysis:

1. Entitlement to Tax Exemption under Section 10(10C):
The core issue was whether the petitioners, ex-employees of RBI who opted for voluntary retirement under the OERS, were entitled to tax exemption on compensation up to Rs. 5 lakhs as per Section 10(10C) of the Income-tax Act, 1961. The OERS was introduced by RBI on August 11, 2003, for employees who had completed 25 years of service and were 50 years old. The petitioners contended that the scheme's voluntary nature and the compensation received should qualify for the tax exemption under Section 10(10C). The court noted that Section 10(10C) allows tax exemption for amounts received at the time of voluntary retirement, provided the scheme meets certain guidelines.

2. Validity of Reassessment Proceedings:
The Assessing Officer issued notices under Section 148 of the Income-tax Act, 1961, to reassess the petitioners' income, alleging that the income for the assessment year 2004-05 had escaped assessment. The reassessment was based on RBI's assertion that the OERS did not comply with Rule 2BA of the Income-tax Rules, 1962. The court found that the reassessment notices were based on the same documents previously examined by the department and that the opinion of RBI or its chartered accountants could not justify reopening the assessment.

3. Conformity with Rule 2BA:
Rule 2BA outlines the requirements for a voluntary retirement scheme to qualify for tax exemption under Section 10(10C). The court examined whether the OERS met these requirements, particularly clauses (i), (iii), and (iv). The court concluded that the OERS applied to employees who had completed more than 10 years of service and were over 40 years old, aimed at reducing overall employee strength, and did not contemplate filling vacancies caused by voluntary retirement. Thus, the OERS was found to be in conformity with Rule 2BA.

4. Binding Nature of Prior Judicial Decisions:
The petitioners argued that a prior judgment by G.C. Gupta J. and decisions by the Income-tax Appellate Tribunal (ITAT) in similar cases should be binding on the Assessing Officer. The court agreed, noting that the ITAT had clearly held that Section 10(10C) applied to the OERS, and the Assessing Officer's contrary orders were discriminatory and violated the petitioners' right to equality under Article 14 of the Constitution.

5. Alleged Violation of Article 14:
The court found that the Assessing Officer's orders, which contradicted prior favorable decisions for other RBI employees under the same OERS, were discriminatory. This inconsistency violated the petitioners' fundamental rights under Article 14 of the Constitution, which guarantees equality before the law.

Conclusion:
The court concluded that the petitioners were entitled to tax exemption under Section 10(10C) for compensation received under the OERS. The reassessment proceedings initiated by the Assessing Officer were invalid, as they were based on the same materials previously considered and an opinion that lacked binding value. The OERS conformed to Rule 2BA, and prior judicial decisions in favor of the petitioners were binding on the Assessing Officer. The court set aside the impugned orders, allowing the writ petition and upholding the petitioners' right to tax exemption and equality under the law.