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TMI Blog2024 (8) TMI 821X X X X Extracts X X X X X X X X Extracts X X X X ..... t there being any obligation on the part of employer to pay further amount to assessee in terms of any service rule. it would not amount to compensation in terms of section 17(3)(i) of the Act. The impugned addition was rightly deleted by the Ld. CIT(A). Thus the payment of ex-gratia compensation received by the assessee was voluntary in nature without there being any obligation on the part of the employer to pay further amounts to the assessee in terms of any service rule and therefore, would not amount to compensation in terms of section 17(3) of the Act. We, therefore, set aside the order of the CIT(A) / NFAC and direct the Assessing Officer to delete the addition. The grounds raised by the assessee are accordingly allowed. - Shri R. K. Panda, Vice President And Ms Astha Chandra, Judicial Member For the Assessee : Shri Nikhil S Pathak For the Department : Shri Ramnath P Murkunde ORDER PER R.K. PANDA, VP : This appeal filed by the assessee is directed against the order dated 06.12.2023 of the CIT(A) / NFAC, Delhi relating to assessment year 2019-20. 2. The grounds raised by the assessee are as under: 1. The Learned CIT(A) has erred by not giving sufficient reasonable opportunit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring total income of Rs. 61,10,370/-. The case was selected for compulsory scrutiny under the E-assessment Scheme, 2019 on the following issues: S.No. Issues i. Refund Claim ii. Relief for Arrear Salary or Advance Salary 4. Accordingly, statutory notices u/s 143(2) and 142(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) were issued and served on the assessee, in response to which the assessee submitted details as called for by the Assessing Officer from time to time. 5. During the course of assessment proceedings the Assessing Officer noted from the ITR that the assessee has shown salary income of Rs. 63,56,239/- in the ITR. Out of this, an amount of Rs. 57,12,674/- was shown as salary received in advance in accordance with the provisions of sub-rule (2) of rule 21A and had claimed tax relief u/s 89 of the Act for the amount of Rs. 18,74,899/-. It was submitted that the assessee is a salaried employee who had worked with M/s. Pfizer Healthcare India Pvt. Ltd. during the assessment year 2019-20. Due to the United States Food and Drug Administration (USFDA) Norms, the said plant had been closed down. On account of loss of income / service due to that the said co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployee whose signed Application has been accepted by the Company will also be entitled to incentives based on certain conditions ................................ 7. The assessee also gave the breakup of the amount of Rs. 57,12,674, details of which are as under: Ex-gratia (Severance pay) [Subject to a minimum of 6 (six months Wages drawn by the Employee: (i) 75 days wages for every year of service with the Company, Or Wages for the remaining months of service with the Company till the attainment of retirement age of 58 years.] Rs. 41,76,438/- (ii) Other Payments (Early Bird = Rs. 7 Lakh and Group participation Incentives = Rs. 5 Lakh) Rs. 12,00,000/- (iii) Notice Period Payout (3 months x monthly gross considered for scheme calculation) Rs. 2,39,866.80/- (iv) Medical Reimbursement Rs. 404.11/- (v) Bonus for Current Year FY 2018-19 (till date of relieving) Rs. 14,400/- (vi) EL Encashment Rs. 60,866/- (vii) Part Salary for the month of Relieving i.e. Feb 2019 Rs. 20,698.90/- Total Rs. 57,12,673.79/- 8. From the above, the Assessing Officer noted that the assessee has received compensation and other dues totaling to Rs. 57,12,674/- which includes Ex-gratia (Severance pay), incentives, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay under the provisions of the Industrial Disputes Act, 1947 as their cessation from the employment constitutes resignation and does not constitute retrenchment or termination of employment by the company. 4.3.3 In the appellant's case, the company has issued Form 16 to the appellant showing the compensation including other due payables under salary as per provisions contained u/s. 17(1) and tax deducted at source accordingly, which shows that the nature of pay an allowance received by the appellant from his employer on relieving the job, is in difference nature as shown by the appellant in the !TR for A.Y. 2019-20 and in Form 10E. The payment received by the appellant in the nature of Ex gratia, notice pay, other payments (early bird), group participation incentives, medical reimbursement, bonus for current year, EL encashment and part salary for the month of relieving is taxable in the hands of the employee as profit in lieu of salary under section 17(3) of the I T Act and is taxable on due basis or receipt basis, whichever is earlier. 4.3.4 The case laws referred by the appellant are not relevant in the case of the appellant. In the present case, as per the scheme, it is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as per clause (11), the Ld. Counsel for the assessee drew the attention of the Bench to the sub-clause (viii) of the same, which reads as under: (viii) All Employees who opt for voluntary retirement under the Scheme will not be entitled to any compensation or notice pay under the provisions of the Industrial Dispute Act, 1947 as their cessation from the employment constitutes resignation and does not constitute retrenchment or termination of employment by the Company . 14. Referring to the provisions of section 17(3) of the Act, the Ld. Counsel for the assessee submitted that the same are not applicable to the facts of the assessee, which reads as under: 17(1) . 17(2) . (3) profits in lieu of salary includes (i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto; (ii) any payment (other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12), clause (13) or clause (13A) of section 10), due to or received by an assessee from an employer or a former employer or from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the erstwhile company as ex-gratia and letter has been issued by the employer which clearly stated that payment of amount has been made voluntarily to the assessee and was not compensation without establishing letter as non-genuine or without examining sanctity of payment made simply invoking provisions of section 17(3)(iii) for making addition was not justified. 18. Referring to the decision of the Delhi Bench of the Tribunal in the case of ITO vs. Avirook Sen (2024) 161 taxmann.com 462 (Delhi Trib.), he submitted that the Tribunal in the said decision has held that where the assessee has received certain amounts as lump sum amount after his termination from the service as a settlement out of court with his employer and said payment was voluntary in nature without there being any obligation on part of employer to pay further amount to assessee in terms of any service rule, such payment would not amount to compensation in terms of section 17(3)(i). 19. Referring to the various other decisions as per case law compilation, he submitted that the amount received by the assessee cannot be termed as compensation in terms of section 17(3)(i). 20. The Ld. Counsel for the assessee submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case: The assessee, Shri Sharad Daulatrao Magar, having PAN: ASHPM1986C, an salaried individual, had filed ITR-1 u/s. 139(1) for AY 2019-20 on 29.07.2019 declaring total income of Rs. 32,03,150/-. Further, Rs. 35,54,140/- was shown as Gross Salary. The assessee was employee of M/s Pfizer Healthcare India Pvt Ltd, Aurangabad during FY2018-19. The company launched VRS beneficial to the employees on planned closure of its unit. The assessee voluntarily resigned from service w.e.f 08.02.2019 and received compensation and out of that compensation he claimed Rs. 30,49,176/- being salary claimed in Advance as exempt u/s 89 from taxation in his ITR u/s 139(1) of the Act. .. 14. The submissions made by the assessee have been examined. As the assessee has submitted corroborative and binding judicial pronouncements in support of his claim that the amount of Rs. 30,49,176/- received by him from his employer at the time of cessation of his employment due to closure of the manufacturing unit was a capital receipt, not subject to tax. The assessee has also placed reliance on various case laws, in support of his above claim, and court has held as under The amounts received were due to loss of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f service, his services were liable to be terminated on giving three months' notice without assigning any reason. Under the circumstances, it cannot be said that the assessee was entitled to remain in service for any period longer after the requisite notice has been given or that the employer was under any obligation to pay anything to the assessee in connection with the termination of his employment other than the salary for the period of notice. Under the circumstances, in its true nature and character, the payment was ex gratia, that is to say, totally voluntary; it was not compensation which implies some sort of an obligation to pay. 6. In this view, it cannot be said that the amount in question was profits in lieu of salary within the meaning of Clause (3) of Section 17. It was not taxable as such. The finding of the Tribunal that the amount was a capital receipt or that it was payment of a casual and non-recurring nature was in the circumstances not necessary. We, hence, do not express any opinion on it. 7. The question of law referred to us in this case, namely : Whether, on the facts and in the circumstances of the case, the amount of Rs. 24,933 received by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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