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2014 (12) TMI 8 - AT - Income TaxEntitlement for claim of exemption u/s 10(10C) - Voluntary Retirement Scheme - Whether all these assessees are entitled for claim of exemption u/s 10(10C) on the compensation/monetary benefits received by them for opting to retire from service under Voluntary Retirement Scheme (VRS), 2000 framed by their company Held that - The first condition is that the VRS should be applied to the employee who has completed minimum 10 years of service or completed 40 years of age - as per the VRS Scheme first condition is fulfilled - except the Directors of the company or the Co-operative Society, scheme should be applicable to all class of the employees including workers and executives of the company - the logic of the CIT(A) itself is not correct that as the company has applied the scheme to only certain class of the employees hence, the condition of Clause-(ii) of Rule 2BA is not fulfilled - Nothing has been brought on record also by the CIT(A) before making such observations at least calling the data from the company whether in fact there was no overall reduction in the employees/workmen in the company. Relying upon COMMISSIONER OF INCOME-TAX Versus KOODATHIL KALLYATAN AMBUJAKSHAN 2008 (7) TMI 259 - BOMBAY HIGH COURT - Rule 2BA laid down the guidelines for the purpose of Sec. 10(10C) of the Act but the Rule, will have to be read borne in mind the object of Sec. 10(10C) itself - the term overall is a general in nature but from the said term no interference can be made that irrespective of the fact whether there is a surplus employees are not the employer must reduce the workers or employees in all the Sections and Departments of his undertaking - the scheme was initiated for the economic survival of the company and reduction in the cost - the condition in Clause-(ii) is also fulfilled - there is overall reduction in the existing strength of the employees of the company which is discussed while deciding Condition No.-(ii) of Rule 2BA - The next condition is that the employer company should not fill up the vacancies caused by the VRS - it was claimed before the AO that after declaring the VRS subsequently the company was closed down and to that effect an affidavit is also filed before us - once the assessee stated that he has not been employed in any company under the management of his employer company then burden is on the revenue to bring on record evidence to show contrary that such undertaking is not correct. There is a maximum ceiling of ₹ 5,00,000/- on the monetary benefits/compensation to be paid to the worker/employee - apart from that as per Sec. 10(10C), the maximum amount eligible for exemption is to extend of ₹ 5,00,000/- and as per VRS Scheme, there is ceiling on monetary benefit to be given to employee which is maximum ₹ 5,00,000 - the employee has to make the investment of the amount received under the VRS whereby the maximum tax rebate is applicable - The benefit in the nature of the tax incentive was given whereby the maximum employees may opt for the VRS and at the same time the economic viability of the industries can be sustained - all the conditions of Rule 2BA are fulfilled in the VRS Scheme framed by the employer company i.e. Kirloskar Copeland Ltd. and both the authorities below are not justified in denying the benefit of exemption to these employees thus, the AO is directed to allow the exemption to all these assessees u/s. 10(10C) of the Act Decided in favour of assessee.
Issues Involved:
1. Entitlement to exemption under Section 10(10C) of the Income-tax Act for compensation received under the Voluntary Retirement Scheme (VRS). 2. Compliance of VRS with Rule 2BA of the Income Tax Rules, 1962. 3. Interpretation and application of the conditions under Rule 2BA. Issue-wise Detailed Analysis: 1. Entitlement to Exemption under Section 10(10C): The primary issue was whether the assessees, who were ex-employees of Kirloskar Copeland Ltd., were entitled to claim exemption under Section 10(10C) of the Income-tax Act for the compensation received under the VRS-2000. The Tribunal noted that the VRS was formulated for the economic viability and cost control of the company and was applicable to permanent employees. The assessees claimed an exemption of Rs. 5,00,000/- under Section 10(10C) for the retirement benefits received. The Tribunal ultimately decided in favor of the assessees, directing the Assessing Officer to allow the exemption under Section 10(10C). 2. Compliance of VRS with Rule 2BA: The Tribunal examined whether the VRS-2000 complied with Rule 2BA of the Income Tax Rules, 1962, which sets out the conditions for a scheme to qualify for exemption under Section 10(10C). The Tribunal found that: - The scheme applied to employees who had completed 10 years of service or were 40 years old, fulfilling the first condition. - The scheme was applicable to certain classes of employees, and the Tribunal interpreted that excluding directors was acceptable, fulfilling the second condition. - The scheme aimed at reducing the overall strength of employees, fulfilling the third condition. - The company did not fill vacancies caused by VRS, and the company was eventually closed down, fulfilling the fourth condition. - The employees had given undertakings that they would not be employed in any other company under the same management, fulfilling the fifth condition. - The monetary benefits did not exceed the prescribed limits, fulfilling the sixth condition. 3. Interpretation and Application of Conditions under Rule 2BA: The Tribunal provided a detailed interpretation of each condition under Rule 2BA: - Condition (i): The scheme applied to employees who had completed 10 years of service or were 40 years old. - Condition (ii): The scheme was applicable to all permanent employees, excluding directors, which the Tribunal found acceptable. - Condition (iii): The scheme was intended to result in an overall reduction in the existing strength of employees. - Condition (iv): The company did not fill the vacancies caused by VRS, and the company was eventually closed down. - Condition (v): Employees provided undertakings that they would not be employed in any other company under the same management. - Condition (vi): The monetary benefits did not exceed the prescribed limits, and the scheme had a ceiling of Rs. 5,00,000/-. The Tribunal concluded that all conditions of Rule 2BA were fulfilled in the VRS Scheme framed by Kirloskar Copeland Ltd., and both the authorities below were not justified in denying the benefit of exemption to the employees. The Tribunal directed the Assessing Officer to allow the exemption under Section 10(10C) of the Act. Conclusion: The Tribunal allowed all the appeals, confirming that the VRS-2000 of Kirloskar Copeland Ltd. complied with the conditions under Rule 2BA and that the assessees were entitled to the exemption under Section 10(10C) of the Income-tax Act. The Tribunal emphasized the importance of examining each scheme independently to ensure compliance with the prescribed conditions.
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