2009 (10) TMI 498 - SC - Income Tax

Voluntary retirement scheme - exemption u/s 10(10C) - The Bombay High Court decided that having regard to the letter of the Central Board of Direct Taxes the amount received by the employees of the RBI opting for Optional Early Retirement Scheme do not qualify for deduction under section 10(10C) - Held that - in view of circular dated 8-5-2009 revenue agreed to allow the benefit of deduction to the appellants under section 10(10C) of the Income-tax Act 1961 as far as the retired employees of the Reserve Bank of India are concerned. - Exemption u/s 10(10C) allowed

Summary

Issues:
Deduction under section 10(10C) of the Income-tax Act, 1961 for employees of the Reserve Bank of India opting for Optional Early Retirement Scheme.

Analysis:

Issue 1: Deduction under section 10(10C) of the Income-tax Act, 1961

The appeals were filed against the Madras High Court's order regarding the deduction available to the appellants under section 10(10C) of the Income-tax Act, 1961. The Commissioner (Appeals)-IV, Chennai's order for the assessment year 2004-05 was challenged before the Income-tax Appellate Tribunal, Chennai Bench, which upheld the claim for deduction made by the appellants. The High Court held that the amount received by employees of the RBI opting for the Optional Early Retirement Scheme did not qualify for deduction under section 10(10C) of the Income-tax Act based on a letter from the Central Board of Direct Taxes. However, a subsequent letter dated 8-5-2009 from the Central Board of Direct Taxes, after reviewing the judgment of the Bombay High Court, clarified that amounts received by retiring employees of the RBI would be eligible for exemption under the Income-tax Act.

Issue 2: Impact of subsequent circular on the case

The subsequent circular issued by the Central Board of Direct Taxes, based on the Bombay High Court's judgment, indicated that the retiring employees of the Reserve Bank of India would be eligible for the exemption under section 10(10C) of the Income-tax Act. In light of this circular, it was submitted on behalf of the Union of India and the Commissioner of Income-tax that the appellants would be allowed the benefit of deduction under section 10(10C) of the Income-tax Act concerning the retired employees of the Reserve Bank of India.

Judgment:

Considering the subsequent circular and the clarification provided by the Central Board of Direct Taxes, the Supreme Court allowed the appeals. The impugned order of the High Court was set aside, and the order of the Tribunal, which upheld the claim for deduction made by the appellants, was restored. The Court ruled in favor of the appellants, allowing the benefit of deduction under section 10(10C) of the Income-tax Act for the retired employees of the Reserve Bank of India. No costs were awarded in this matter.