2012 (11) TMI 214 - AT - Income Tax

Exemption u/s 10(10C) Voluntary retirement scheme - Assessee received ex-gratia on VRS and claim exemption u/s 10(10C) on said amount AO not allow the claim on basis of violation of condition laid down under rule 2BA Held that - Following the decision in case of Pandya Vinodchandra Bhogilal (2010 (7) TMI 796) that the provisions of section 10(10C) are to be interpreted liberally in a manner which is beneficial to retired employees. If AO had any doubt about the scheme he could have enquired from the employer. Assessee employee cannot be penalized and tax will be levied on him on the assumption that the scheme framed by employer is not in accordance with rule 2BA. In favour of assessee

Summary

Issues:
- Disallowance of exemption claimed under Section 10(10C) of the Income-tax Act, 1961.
- Compliance of 'Exit Option Scheme' with conditions of Section 10(10C) read with rule 2BA.
- Validity of the order of the ld. CIT(A) and eligibility for exemption u/s 10(10C) of the Act.

Analysis:
1. The case involved the disallowance of exemption claimed under Section 10(10C) of the Income-tax Act, 1961, by the Assessing Officer for an amount of Rs.5,00,000. The AO noted that the assessee had claimed this exemption but deemed it ineligible. The CIT(A) upheld this decision, citing non-compliance with the conditions of the scheme regarding filling vacancies and lack of approval by the Income Tax Department, leading to the ineligibility for exemption under Section 10(10C) of the Act.

2. The Appellate Tribunal, after hearing both parties, considered a similar case involving a Deputy Manager in SBI who had taken VRS under an exit option scheme. The Tribunal referred to a decision where the issue was the allowability of exemption under Section 10(10C) of the Act. It was observed that the scheme for VRS was not in accordance with rule 2BA, but the Tribunal found this reasoning unsound. The Tribunal emphasized that the employer's framing of the scheme should be questioned if in doubt, rather than penalizing the employee. The Tribunal also highlighted the need to interpret Section 10(10C) liberally to benefit employees opting for voluntary retirement.

3. The Tribunal cited judgments from various High Courts supporting the interpretation that employees opting for voluntary retirement are entitled to exemption under Section 10(10C) of the Act. The Tribunal emphasized that if two views are possible, the one favorable to the assessee should be adopted. Relying on decisions from the jurisdictional High Court, Bombay High Court, and Karnataka High Court, the Tribunal allowed the claim of the assessee, holding them entitled to exemption under Section 10(10C) to the extent of Rs.5 lakhs.

4. Ultimately, the Tribunal ruled in favor of the assessee, following the decision of the Hon'ble Tribunal and the precedent set by previous judgments. The appeal was allowed, granting the assessee the exemption under Section 10(10C) of the Act.