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2022 (2) TMI 312 - AT - Income TaxNature of receipt - Voluntary severance payment received from the employer - Whether severance payment to the assessee is voluntary in nature and it does not amount to compensation within the provisions u/s 17(3)(i) ? - As per assessee he was in employment with the M/s.AREVA India Pvt Ltd from the year 2006 but due to shutting down of business operations in India the assessee has lost his employment - HELD THAT - Assessee was paid severance pay due to loss of employment because of shutting down of business operations in India. Further, such payment takes the character of a capital receipt and cannot be considered taxable u/s 17(3)(i) as a compensation. The assessee has received the onetime payment and it is not recurring in nature. We are of the substantiate opinion that the assessee has lost his employment which was continued from the year 2006. The letter dated 31.05.2016 was in respect of severance payment received by the assessee though specifically does not mention the term ex- gratia but the fact remains that the assessee has lost his employment at the instance of the employer closing down its business operations in India. The receipt of severance pay though the nomenclature is not mentioned as ex- gratia but takes the character of a capital receipt and the payment was made voluntary by the employer for loss of employment. and such capital receipt is not taxable in the hands of the assessee. Accordingly, we set aside the order of the CIT(A) and direct the Assessing officer to delete the addition and allow the grounds of appeal in favour of the assessee.
Issues Involved:
1. Adjustment to total income. 2. Additions to total income on debatable issues. 3. Taxability of voluntary severance pay/ex-gratia as capital receipt. 4. Violation of principles of natural justice. 5. Granting of credit for tax deducted at source (TDS). Detailed Analysis: 1. Adjustment to Total Income: The assessee contended that no adjustment to total income was warranted. The Commissioner of Income-tax (Appeals) [CIT(A)] confirmed the action of the Deputy Commissioner of Income-tax, Centralised Processing Centre (DCIT CPC) in making adjustments to the total income of the appellant. The CIT(A) erred in not considering the explanation furnished by the appellant regarding these adjustments. 2. Additions to Total Income on Debatable Issues: The appellant argued that additions to total income could not be made on issues that are debatable. The CIT(A) erred in confirming the addition made by the DCIT CPC on such debatable issues, which should not have been subject to adjustment under section 143(1) of the Income-tax Act, 1961. The CIT(A) also failed to properly consider judicial precedents that support the appellant's case. 3. Taxability of Voluntary Severance Pay/Ex-Gratia as Capital Receipt: The appellant received a voluntary severance pay of ?74,28,585 due to the termination of employment following the shutdown of business operations by the employer, M/s. AREVA India Pvt Ltd. The appellant claimed this severance pay as a capital receipt, not taxable as income. The CIT(A) held that the voluntary ex-gratia received by the appellant is taxable under section 17(3)(i) of the Act. However, the appellant argued that such payments should not be considered as compensation under section 17(3)(i) and thus should not be taxable. The Tribunal examined the facts and judicial precedents, including the decision in CIT Vs. Ajit Kumar Bose, which held that ex-gratia payments are voluntary and not compensation, hence not taxable. The Tribunal concluded that the severance payment received by the appellant is a capital receipt, not taxable under section 17(3)(i), and directed the Assessing Officer to delete the addition. 4. Violation of Principles of Natural Justice: The appellant argued that the CIT(A) violated the principles of natural justice by not providing an opportunity for a personal hearing before disposing of the appeal. The CIT(A) also failed to consider the appellant's submissions properly, leading to flaws in the decision-making process. The appellant contended that the orders of the CIT(A) and DCIT CPC should be quashed due to this failure to comply with natural justice principles. 5. Granting of Credit for Tax Deducted at Source (TDS): The appellant requested that the income-tax department be directed to grant credit for the tax deducted at source in accordance with the law. The CIT(A) granted relief concerning the adjustment of TDS credit, partly allowing the appellant's appeal on this ground. Conclusion: The Tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT(A) and directing the Assessing Officer to delete the addition related to the severance pay. The Tribunal found that the severance payment was a voluntary, non-recurring capital receipt, not taxable under section 17(3)(i) of the Income-tax Act. The Tribunal did not adjudicate on the technical issues, considering them academic after deciding the appeal on merits. The appeal was pronounced in favor of the assessee on 15.11.2021.
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