2012 (3) TMI 191 - HC - Income Tax

Relief u/s 89 - Voluntary retirement scheme for employees - payments to the employees, but without any tax deduction at source, based on Section 89(1) of the Income Tax Act - writ petition filed for the financial year 2000-2001 - the petitioner contented that a Division Bench of this Court has in State Bank of Travancore & Ors. v. Central Board of Director Taxes & Anr. 2005 -TMI - 9572 - KERALA High Court allowed the claim of another Bank in a similar situation - Held that - Writ petition is allowed as to follow the binding judgments of a jurisdictional High Court in the above mentioned case and not ignoring merely on the ground that a Special Leave Petition has been filed before the Supreme Court for stay .

Summary

Issues:
Challenge of demand of tax and interest under Sections 201 and 201(1A) of the Income Tax Act, 1961 due to non-deduction of tax at source on ex-gratia payments made to employees under a voluntary retirement scheme.

Analysis:
The petitioner, a branch of a Nationalized Bank, contested the demand of tax and interest imposed under Sections 201 and 201(1A) of the Income Tax Act, 1961, related to ex-gratia payments made to employees who opted for voluntary retirement. The branch made these payments without tax deduction at source based on Section 89(1) of the Income Tax Act, following instructions from the Head Office. The dispute arose for the financial year 2000-2001, with the 2nd respondent rejecting the claim of relief under Section 89(1) and raising a tax demand along with interest. Additionally, the 3rd respondent proposed a penalty. The petitioner's contentions were dismissed by the assessing officer, resulting in a modified order being passed. The petitioner's revision was also rejected, citing a previous decision challenged before the Supreme Court as a reason for denial.

The petitioner argued that a Division Bench of the High Court had allowed a similar claim by another bank in State Bank of Travancore & Ors. v. Central Board of Director Taxes & Anr., asserting that the Department should follow binding judgments. The Court criticized the authorities for not adhering to binding judgments merely because a Special Leave Petition had been filed before the Supreme Court, highlighting the absence of a stay order from the Supreme Court. Given that the issue raised in the present case was covered by the Division Bench judgment, the Court held that the writ petition should be allowed, setting aside the assessment order and the revisional order, and ruling in favor of the petitioner, with no costs incurred.