2023 (8) TMI 90 - HC - Income Tax

Exemption u/s 10 (10C) - Settlement of dues receipt in terms of voluntary retirement - second respondent made application under the voluntary retirement scheme opting to leave the service of the petitioner Company, as accepted, after deducting TDS he was paid a sum as full and final settlement of his dues - as argued petitioner company illegally deducted the wages of the second respondent in terms of income tax as wages due to the period of work done by the employees would be in an ambit of Section 33 (c ) (2) of ID Act and under VRS the amount payable to the workman will be exempted Rs. 5,00,000/- from the income tax as per Income Tax Act, So the management have illegally deducted a sum from his retirement benefits. HELD THAT - As on perusal of clause 10(C) of Section 10 of Income Tax Act, revealed that payments on account of voluntary retirement are to be exempted from income tax only if the schemes governing the said payments are in accordance with the guidelines prescribed in this behalf - As petitioner would submit that the scheme floated by the petitioner Company is not by any law. Since it was only contract between the petitioner and the second respondent and he was allowed to retire on voluntary retirement scheme. Therefore, Section 10(C) of the said Act is not at all applicable to the second respondent. However, the petitioner failed to produce any receipt or challan in respect of the payment as deducted from terminal benefits of the second respondent before the Income Tax Department. Admittedly, the second respondent was voluntarily retired from his service. Therefore, as per Income Tax Act, the person who had retired from service on voluntary retirement scheme, his income upto Rs. 5,00,000/- on retirement have to be exempted from income tax. Therefore, the first respondent rightly directed the petitioner to pay a sum to the second respondent. Hence, this Court finds no infirmity or illegality in the order passed by the first respondent. Accordingly, this writ petition is dismissed. It is made clear that the petitioner is directed to pay the remaining amount after deducting the amount which was already deposited on the file of the first respondent within a period of four weeks from today.

Issues involved:
The issues involved in the judgment are the legality of deduction of income tax from terminal benefits under a voluntary retirement scheme, applicability of Section 10(C) of the Income Tax Act, and the obligation of the petitioner to pay the deducted amount to the second respondent.

Details of the Judgment:

Issue 1: Legality of deduction of income tax from terminal benefits
The petitioner had deducted a sum of Rs. 1,15,488/- as income tax from the terminal benefits of the second respondent under a voluntary retirement scheme. The petitioner contended that the deduction was made in accordance with the prevailing income tax laws at the time of the respondent's retirement and that the amount was duly paid to the Income Tax Department. The second respondent challenged the deduction as illegal after a significant period following his retirement, alleging coercion in accepting the voluntary retirement scheme.

Issue 2: Applicability of Section 10(C) of the Income Tax Act
Section 10(C) of the Income Tax Act provides for income tax exemption on payments received at the time of voluntary retirement, subject to the schemes governing the payments being in accordance with the prescribed guidelines. The petitioner argued that the scheme implemented by the company was a contractual agreement between the parties and not governed by any law, hence Section 10(C) was not applicable to the second respondent. However, the court found that the second respondent's retirement fell under the purview of the Income Tax Act, entitling him to exemption on income up to Rs. 5,00,000/-.

Issue 3: Obligation to pay the deducted amount
The court upheld the first respondent's decision directing the petitioner to pay the deducted amount of Rs. 1,15,488/- to the second respondent. It was noted that the second respondent's retirement was voluntary, and as per the Income Tax Act, a portion of his income upon retirement should have been exempted from income tax. The court found no illegality in the first respondent's order and dismissed the writ petition. The petitioner was directed to pay the remaining amount after deducting the deposited sum within four weeks.

Conclusion:
The judgment addressed the legality of income tax deduction from terminal benefits, the applicability of Section 10(C) of the Income Tax Act, and the obligation of the petitioner to pay the deducted amount to the second respondent. The court upheld the order directing the petitioner to pay the deducted sum, emphasizing the applicability of income tax exemptions for voluntary retirement benefits under the Income Tax Act.

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