2006 (3) TMI 101 - HC - Income Tax

Amount receivable by the assessee on his voluntary retirement - Tribunal has held that under rule 2BA (vi) only the lower of the two limits specified therein is exempt and therefore only a sum of Rs. 35, 445 being the lower limit would be allowable to the assessee under section 10(10C) - Tribunal has substantially erred in law in importing words whichever is lower in rule 2BA(vi) of the Income-tax Rules 1962 - On a plain interpretation of the provisions of section 10(10C) of the Act and clause (vi) of rule 2BA of the Rules this court is of the opinion that the Tribunal was not justified in allowing the amount representing the lower of the two limits under the scheme of voluntary retirement. - Tribunal has substantially erred in law in holding that out of the two limits prescribed by clause (vi) of rule 2BA the lower limit is exempt

Issues Involved:
1. Applicability of Rule 2BA(vi) of the Income-tax Rules, 1962, in the context of voluntary retirement.
2. Interpretation of the limits specified in Rule 2BA(vi) for exemption under section 10(10C) of the Income-tax Act, 1961.
3. Whether the lower limit of the specified amounts in Rule 2BA(vi) should be considered for exemption.
4. Legality of the Income-tax Appellate Tribunal's decision regarding the interpretation of Rule 2BA(vi).

Detailed Analysis:

1. Applicability of Rule 2BA(vi) of the Income-tax Rules, 1962:
The court examined the provisions of section 10(10C) of the Income-tax Act, 1961, which allows exemption for amounts received on voluntary retirement, provided the scheme conforms to the guidelines prescribed under Rule 2BA of the Income-tax Rules, 1962. The court emphasized that different companies can frame different voluntary retirement schemes, but these must align with Rule 2BA guidelines.

2. Interpretation of the Limits Specified in Rule 2BA(vi):
Rule 2BA(vi) specifies that the amount receivable on voluntary retirement should not exceed either (a) three months' salary for each completed year of service or (b) salary at the time of retirement multiplied by the balance months of service left before superannuation. The court noted that the emphasis is on the amount not exceeding these limits, rather than mandating the lower of the two amounts.

3. Whether the Lower Limit Should Be Considered for Exemption:
The Tribunal had held that only the lower of the two specified limits should be exempt. However, the court disagreed, stating that Rule 2BA(vi) does not stipulate that the lower of the two limits should be applied. The court clarified that the amount receivable could be either of the two specified amounts, provided it does not exceed Rs. 5,00,000, as per section 10(10C).

4. Legality of the Tribunal's Decision:
The court found that the Tribunal erred in interpreting Rule 2BA(vi) by importing the words "whichever is lower," which are not present in the rule. The court held that this interpretation was incorrect and amounted to rewriting the rule, which is not permissible. The court emphasized that the correct interpretation allows for either of the specified limits to be considered, not necessarily the lower one, thus overturning the Tribunal's decision.

Conclusion:
The court concluded that the voluntary retirement scheme of Reliance Industries Limited conformed to the guidelines under Rule 2BA, and the amount received by the appellant did not exceed the prescribed limits. Therefore, the exemption claimed under section 10(10C) was justified. The substantial questions of law were answered in the affirmative, and the appeal was disposed of with no orders as to costs.

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