2019 (2) TMI 814 - AT - Income Tax

Deduction u/s. 35DDA - payment made towards Voluntary Retirement Scheme - whether payment made to the employee under Employees Voluntary Retirement Scheme and cannot be held as a contribution to the Superannuation Fund of the employees? - Held that - We find that the assessee had submitted before the AO and CIT(A) that it had paid the sum to its employees on their opting to avail the Voluntary Retirement Scheme and that it was not a contribution to the approved Superannuation Fund as observed by the AO. The assessee had claimed the sum as a deduction u/s. 35DDA and was allowed during the assessment u/s. 143(3) of the Act. Thus, it is clear that the payment is not towards the Superannuation Fund as held by the AO. In fact Section 2(6) of the Income Tax Act defines the approved superannuation fund as a superannuation fund or any part of a superannuation fund which has been and continues to be approved by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part B of the Fourth Schedule. Fringe Benefits are defined u/s. 115WB of the Act Clause-C of Section-1 thereof refers to - any contribution by the employer to an approved superannuation fund for employees. In the case before us, the payment made towards Voluntary Retirement Scheme is not a contribution to the approved Superannuation Fund for employees as rightly held by the CIT(A). - decided against revenue

Summary

Issues involved:
Revenue's appeal against the order of the Commissioner of Income Tax (Appeals)-5, Hyderabad for the AY 2009-10 regarding the treatment of payment made to Superannuation Fund under the Voluntary Retirement Scheme.

Analysis:
The case involved a dispute over whether a payment made to employees under the Voluntary Retirement Scheme should be considered a contribution to the Superannuation Fund and subject to Fringe Benefit Tax (FBT). The Assessing Officer reopened the assessment and brought the amount to tax, claiming it was covered under the ambit of the Superannuation Fund. The assessee contended that the payment was not a contribution to the Superannuation Fund but was a deduction claimed under section 35DDA of the Income Tax Act. The CIT(A) allowed the appeal, stating that the payment was made under the Employees Voluntary Retirement Scheme and not towards the Superannuation Fund. The Revenue appealed this decision, arguing that the provision made for the VRS Scheme falls under the Superannuation Fund's ambit, attracting FBT.

Upon review, the ITAT found that the payment made towards the Voluntary Retirement Scheme was not a contribution to the approved Superannuation Fund for employees. The ITAT referred to the definition of an approved superannuation fund under Section 2(6) of the Income Tax Act and the definition of Fringe Benefits under Section 115WB, which includes contributions to an approved superannuation fund for employees. The ITAT upheld the CIT(A)'s decision, stating that the payment towards the Voluntary Retirement Scheme did not qualify as a contribution to the Superannuation Fund. Consequently, the ITAT dismissed the Revenue's appeal, concluding that the grounds raised by Revenue were not valid.

In summary, the ITAT ruled in favor of the assessee, determining that the payment made under the Voluntary Retirement Scheme was not a contribution to the Superannuation Fund and therefore not subject to Fringe Benefit Tax. The judgment emphasized the distinction between the VRS payment and contributions to an approved Superannuation Fund, based on the definitions provided in the Income Tax Act.