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TMI Blog2011 (12) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... formity with Rule 2BA of the Income Tax Rules and, therefore, benefit of Section 10(10C) was not available. Since Section 10(10C) was not available, the assessee was liable to deduct the tax at source on the payments made to the employees. As the assessee had failed to deduct the tax at source, assessing officer determined the short deduction at Rs.13,94,55,417/- and interest at Rs.986,64,707/- under Section 201(1A) of the Act. 2. The assessee assailed the aforesaid order of the assessing officer before the CIT(A). The CIT(A) allowed the appeal holding that the assessee could not be treated as an „assessee in default‟ under Section 201(1A) of the Act. The CIT(A) relied upon the judgment of Gujarat High court in the case of Arun Kumar T. Makwana v. Income Tax Officer, [2006] 286 ITR 502 (Guj.) and held that the scheme floated by the company was in conformity with Rule 2BA and provisions of the Act. The payments made by the company under VRS cannot be treated as profit in lieu of salary. It was observed that as per the claim of the assessee, wherever any payment is made in excess of Rs. 5 lacs and payment in regard to early bird incentive, the tax had been deducte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e referred to and relied upon the reasoning given in the order of the assessing officer. It was pointed out that VRS provided that employees opting for early retirement in the months of September, 2001 and October, 2001 would be entitled for certain additional benefits, namely, (i) Medical coverage under "superannuation Medical Insurance Plan" till attaining the age of normal retirement, i.e. 58 years. The insurance plan provides a medical insurance of Rs.2 lacs per annum. (ii) The employees from technician/assistants (L01 to L10) category would be entitled for a monthly pension of 100% of last drawn monthly Basic + DA for a maximum period of 24 months or balance of months of service, whichever is less. (iii) Medically unfit employees who opted for early retirement shall be entitled for a one time medical allowance of Rs.25,000/- 5. The assessee also floated a Voluntary Separation Scheme (VSS) for drivers as per Circular No.09/01 dated 22/11/01. As per this scheme, permanent drivers working as casuals before, who opted for the scheme, will get the benefit of 2.5 months salary (basic + DA) for each completed year of service or salary (basic + DA) for balance months of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the Official Gazette, specify in this behalf,] [on his] [voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred to in sub-clause (i), a scheme of voluntary separation, to the extent such amount does not exceed five lakh rupees]: Provided that the schemes of the said companies or authorities [or societies or Universities or the Institutes referred to in sub-clauses (vii) and (viii)], as the case may be, governing the payment of such amount are framed in accordance with such guidelines (including inter alia criteria of economic viability) as may be prescribed [***]: Provided further that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year ;] XXX XXX XXX [35DDA. Admortisation of expenditure incurred under voluntary retirement scheme. (1) Where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee 35[in connection with] his voluntary retirement, in accordance with any scheme or schemes of volunt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.] XXX XXX XXX Guidelines for the purposes of Section 10(10C). Rule 2BA. any amount received by an employee of- (i) a public sector company; or (ii) any other company; or (iii) an authority established under a Central, State or Provincial Act; or (iv) a local [authority; or] (v) a co-operative society; or (vi) a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or (vii) an Indian Institute of Technology within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceivable by an employee on his voluntary retirement or termination of services would be exempted up to Rs. 5 lakhs if the scheme is in accordance with the guidelines as specified in Rule 2BA of the Income Tax Rules. Clause (vi) of Rule 2BA provides that the amount receivable on account of voluntary retirement shall not exceed the amount equivalent to three months salary for each completed year of service or salary at the time of retirement multiplied by balance months of service left before the date of his retirement on superannuation. Explanation to this Rule stipulates that the expression „salary‟ shall have the same meaning as is assigned to it in clause (h) of Rule 2 of Part A of the Fourth Schedule. As per this, salary for the purpose of this Rule is to be taken as basic salary + DA, if the terms of employment provide for payment of DA. 8. It is not in dispute that the payment made by the assessee to its employees under the said VRS is much more than what is prescribed in Rule 2BA of the Income Tax Rules. Also, it is more than Rs. 5 Lakhs. Therefore, there may not be quarrel to the extent that payment made beyond Rs. 5 Lakhs or beyond the limit prescribed in Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. They were under the notice giving incentive for opting at an early date which were wholly gratuitous, discretionary and the employees could not claim any vested right therein unlike the payments specified under the VRS. It is worthwhile to note that insofar as these payments are concerned, namely, additional incentive given for early option, the assessee had duly deducted the tax at source and the same was not considered by the assessee for computing the limit of exemption specified under Section 10(10C) of the Act. The CIT(A), thus, concluded that the assessee was not „assessee-in-default‟. It relied upon the judgment of Gujarat High Court in the case of Arun Kumar T. Makwana (supra) in support of its conclusion. The CIT(A) also took support from Circular No.640 issued by CBDT, New Delhi whereby the CBDT had clarified and given answer to various queries raised by the Department. He particularly referred to question No.6 and the answer thereto. Question No.6 is that where the amount receivable on account of voluntary retirement exceeds rupees five lakhs in case of an employee, whether the entire amount receivable or only the excess of the amount above rup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal in Nestle India Pvt. Ltd. 61 ITD 441 has been referred in the Ld. Commissioner of Income Tax (Appeals)‟s order in which it has been held that assessee cannot be treated in default u/s 201(1A) of the Act when the conduct of the assessee for not deducting TDS was not malafide. 4.5 Revenue has appealed against the above order of Hon‟ble Delhi High Court in the case of CIT v. Nestle India Ltd. reported in 243 ITR 435 has dismissed the revenues appeal by holding as under:- "In our view, the proposed questions are not fit for reference to this Court. From the afore-extracted portion of the order of the Tribunal it is evident that the Tribunal‟s finding that the assessee had a good and sufficient reason for not deducing tax at source on the said amount is founded on the fact that it was under a bona fide belief that the conveyance allowance was not to be included in the salary. The conclusion arrived at by the Tribunal is a pure finding of fact, which does not give rise to any question of law. The Tribunal has not examined, and rightly so, the question as to whether the said allowance has to be adjudicated at the time of assessment of the employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0C) of the Act. 12. In the above case, the VRS of the assessee provided for 45 days salary of each completed year of service, and a specified sum for the balance year of service as ex-gratia amount. It was held by the Court that the VRS framed by the assessee company was in conformity with the guidelines prescribed in Rule 2BA of the Rules, even though the amount payable thereunder was not computed on the basis specified in the said Rule. 13. The factual position which emerges from the aforesaid discussion is that (a) in the assessment orders passed in the case of employees, the Department accepted that the employees were entitled to the benefit of Section 10(10C) of the Act; (b) as per the judgment of Gujarat High Court, merely because payment of more than Rs. 5 lakhs is made would not mean that the schemes are not in conformity with Rule 2BA and the provisions of Section 10(10A) of the Act; (c) wherever any payment is made in excess of Rs. 5 lakhs and payments made in regard to early bird incentives, the tax has been deducted by the company on such payments made and that tax is paid to the Government. 14. The assessee acted in a bona fide manner and, therefore, cannot be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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