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TMI Blog2022 (5) TMI 1176X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and in law, the National Faceless Appeal Centre (NFAC) ought to have allowed relief under section 89(1) read with Rule 21A(1)(a) amounting to Rs.15,96,688/-. 3. The appellant craves leave to add, alter, modify or delete any of the above Grounds of Appeal." 3. We have heard rival submissions and perused the materials available on record. The assessee e-filed his return of income on 30/07/2017 declaring a total income of Rs.58,37,970/-. Subsequently, the assessee filed revised return of income on 22/05/2018 declaring total income of Rs.58,59,880/-. The return was processed u/s 143(1) of the IT Act, 1961 and thereafter the case was selected for scrutiny. Notice u/s 143(2) was issued on 09-08-2018. Notices u/s 142(1), along with questionnaire were issued from time to time owing to change of incumbent of office and the same were served on the assessee. All the notices have been issued electronically to the assessee and the response of the assessee has also been received electronically. 3.1. The submissions made by the assessee electronically have been examined. The case has been selected for limited scrutiny to examine the issue - relief u/s 89. The relevant details on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement, between the Company and the individual workers, it was specifically agreed that each of the 275 ex-workmen would be paid an ex-gratia amount per month on the condition that they would not obstruct the development of the entire mill land (except 1.08 acres of land). By the agreement, the ex-worker accepted the closure of the mill and also accepted his consequent termination of service and also agreed that the assessee be treated as left employment and has given up his right of employment. Clause 7 of the agreement also specified that any time in the future, if the second party, ie, the individual worker, decided to accept a lump sum amount in lieu of the amount agreed to be paid, then both parties would be free to settle the same mutually. 3.6. The company entered into a Supplementary Agreement dated 21-11-2016 individually with the ex-workers with the aim of settling the matter forever whereby, each ex-worker agreed to accept a lump sum amount in lieu of the remaining years of service upto 63 years of age. As per the terms of the agreement, the assessee has agreed to fore-go all rights, title or interest in the earmarked land of 1.08 acres and the Company shall continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the compensation received amount and claimed it to be payable in Asst Years 2017-18 to Asst Years 2035-36 by computing the tax for the future Asst Years on the basis of tax rates of Asst Year 2017-18. The relief so worked out comes to Rs.15,96.688/-, However, the computation of relief u/s 89(1) of the Act in the case of compensation on termination of employment, is as per Sub-rule (4) of Rule 21A of the lncome Tax Rules (Annexure III of Form 10E). 3.10. Rule 21A which prescribes the mode of computation of relief u/s 89(1) of the Act states that - 'Where by reason of any portion of an assessee's salary being paid in arrears or in advance or by reason of any portion of family pension received by an assessee being paid in arrears or, by reason of his having received in any one financial year salary for more than 12 months or a payment which under the provisions of clause (3) of Section 17 is a profit in lieu of salary, his income is assessed at rate higher than that at which would otherwise have been assessed, the relief to be granted under sub-section (1) of Section 89 shall be (a) where any portion of the assessee's salary is received in arrears or in advance or, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount received by him should not be treated as compensation on termination of employments instead of advance of salary as claimed by him. 3.15. The assessment u/s 143(3) was completed on 26/12/2019 assessing total income at Rs. 58,59,880/- as per revised return of income. However, the learned A.O. allowed relief u/s 89 (1) only to the tune of Rs. 2,97,711/- under Rule 21A (1)(c) by treating the same as compensation for termination of service and by spreading over the amount received over a period of last three years. 3.16. The various submissions of the assessee before the lower authorities were summed up by the ld. CIT(A) as under:- * The services of the appellant were terminated vide Agreement dated 15.02.2008. * Further order of Labour Commissioner dated 11.01.2008 confirms this factual position. * The appellant was entitled to and received monthly compensation from 2008 to 2016 which was secured by the Government of Maharashtra letter dated 30-09-2008. This was taxable under the head "Salaries" since as per section 15, salary includes salary due from former employer also. This, by no stretch of imagination, means that compensation received in 2017 represents compen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore this Tribunal in the case of Rajesh Shantaram Chavan referred to supra. The operative portion of the order of this Tribunal in ITA No.1841/Mum/2021 dated 22/04/2022 are as under:- 16. Considered the rival submissions and material placed on record, we observed from the record that assessee is one of the employee who did not agree for the voluntary retirement scheme offered by the company and subsequently company has pledged a piece of land for the benefit of 275 employees who are not agreed for the voluntary retirement scheme compensation. Subsequently owing to the order of the Labour Commissioner and Municipal Corporation of the Greater Mumbai which imposed certain conditions on the company to safeguard the interest of the 275 workers who had not opted for voluntary retirement scheme. 17. Subsequently individual employees and the company entered into supplementary agreement and the company agreed to compute the total compensation payable by the company till they attain 63 years of age and accordingly in the case of the assessee it was determined to be at Rs..59,61,483/-. The company after considering that these are one time lumpsum ex-gratia amount payable to the employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision is of any help to the appellant in the present case. It seems clear to us that in the present case the appellant has surrendered no rights under the contract; what has been paid to him has been paid under the terms of contract and as salary which he would have earned if twelve months' notice had been given to him. As no notice was given he was treated as though he was in service and entitled to salary for twelve months and that was what was paid to him. It is difficult to see how such payment can be treated as compensation for loss of office. The present case is similar to the two cases of Henry v. Arthur Foster and Henry v. Joseph Foster [1932] 16 Tax Cas. 605 and Henry's Case (supra) and different from the case of Hunter v. Dewhurst (supra). In the first two cases the respondents were directors of a limited company. They had no written contracts of services with the company but Article 109 of the company's articles provided that in the event of any director who held office for not less than five years, dying or resigning or ceasing to hold office for any cause other than misconduct, bankruptcy, lunacy or incompetence, the company should pay to him or his represent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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