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TMI Blog2025 (1) TMI 1537X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in confirming the AO's ascertaining correct perspective of Form 10E, Form 16 & has thus erred in not granting relief u/s 89 and has erred in giving relief u/r 21A(1) (c) instead of u/r 21A(1)(a). 3. The Learned CIT (A) has erred in confirming the AO's failure to make any enquiries related to non-reliability of Form 10E, employer not reporting relief u/s 89 in Form 16 & the same being taxable u/s 17(3)(i) & the understanding of advance salary, thus the AO has failed & erred in defying the established principle of natural justice, reasonable opportunity & has thus completed a biased & unlawful assessment. 4. The Learned CIT (A) has erred in confirming AO's non consideration and understanding the Financial Scheme Document and failed to arrive at the correct interpretation and the underlying intentions of the Co. towards the appellant and the need for evolving the said scheme of pre-mature retirement of all employees permanently. 5. The Learned CIT(/A) has erred in confirming the AO'% non acceptance of the Appellant's stand of the said amount received, being (Capital Receipts in nature, irrespective of the same being obligatory or not on part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lary income of Rs. 42,57,146/-, claimed loss under the head "Income from house property" of Rs. 1,44,045/- and income from other sources of Rs. 22,420/-. The assessee claimed deduction of Rs. 2,05,753/- under various sections of Chapter-VIA and also claimed tax relief of Rs. 6,57,914/- u/s 89(1) of the Act. During the course of assessment proceedings, the assessee submitted that the management of Pfizer Healthcare India Private Limited, MIDC, Waluj, Aurangabad has formulated a scheme for all permanent employees in the company and under the preamble of the said scheme, the company has decided to cease manufacturing in its plant located at Plot No. L-8 (Part), L-9 and Gut No. 36, 37, 38 MIDC, Waluj, Aurangabad-431136 ("Plant") with the intention to exist the plant due to significant long term loss of product demand. 3.2 The assessee availed the said scheme in the relevant AY 2020-21. On account of loss of income/service, the company had given capital receipts/payments to the employees who were affected, depending on the balance service left on their service records. This is the amount the assessee received from his employer for loss of service. Its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in pages 16 to 38 of the appellate order. In his submissions before the Ld. CIT(A)/NFAC, the assessee, inter alia submitted as under : *Brief Facts: § The Appellant was employee of Pfizer Healthcare India Pvt. Ltd. at Aurangabad at the time of Closure of the Co. he was initially appointed by Orchid Chemicals & Pharmaceuticals Ltd. vide letter of appointment dt. 14.3.13, Orchid was taken over by Hospira Healthcare India Ltd which was further changed to & became Pfizer Healthcare India Pvt. Ltd. & the retirement scheme has been given by Pfizer. § Pfizer intended to exit the plant at Aurangabad due to significant long-term loss of product demand, accordingly, informed its employees. Pfizer desired to provide a Bonafide beneficial settlement to all permanent employees known as Financial Scheme for Employees of Aurangabad 2019, referred to as "Scheme" dt. 9.1.19. The scheme was purely voluntary. § Pfizer paid the Appellant dues on account of Salary & other regular benefits & additionally paid Ex-Gratia (Severance pay), Early Bird & Group participations incentives in lieu of his premature cessation & loss of job. § Appellant in his ITR claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mportant to analyse the letter of appointment & financial scheme 2019 documents, which are being explained & deliberated upon as under: - v Analysis of letter of Appointment. o Initially the Appellant was appointed by Orchid Chemicals & Pharmaceuticals Ltd. by Letter of Appointment dt. 14.3.13, further the said Co. was acquired by Hospira Healthcare India Ltd. in continuation of his employment with Orchid by letter dt. 3.7.14 thereafter the same Hospira Healthcare India Pvt. Ltd. became Pfizer Healthcare India Pvt. Ltd. hence the Appellant request that it is necessary to analyse the terms of Appointment as under. Kindly refer the letter of Appointment dt. 14.3.13 at pg. 15-17 of paper book o Letter of Appointment dt. 3.7.14 Primary Appointment letter of Orchid which continued with Hospira & thereafter with Pfizer: - § Clause 01.- Emoluments states the details of Salary & allowances & Annual entitlements to be given to the employee. § Clause 04. Benefits-states Employees will be entitled for Provident Fund, Gratuity & Bonus no other benefit with reference to retirement has been provided. § Clause 07.- Notice Period - your service can be terminated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation Sheet, In Annexure-III. The analysis of scheme documents is being explained as under: - Kindly refer to employment & Financial Scheme details in at pg. 4-14 of paper book Kindly refer full & final settlement Computation sheet at pg. 2-3 of paper book o 1. PREAMBLE - § (i) - Pfizer decided to cease manufacturing at Aurangabad Plant with the intention to exit due to significant long-term loss of product demand. § (ii) - Pfizer's decision was Bonafide & had been made after an extensive & careful evaluation & accordingly informed to all the employees. § (iii) - Pfizer desired to give stated a beneficial settlement towards their said objective & the said scheme was stated to purely voluntary from the Co. & optional for the employees. § (iv) - Employees opting for the scheme would be ending their employment on 30.4.19 & will be paid attractive financial package & those who do not opt for the scheme will be only entitled to statutory or contractual dues payable on cessation of employment if they are eligible. The Preamble reflects the purpose & objective of the Co. to shut its plant because of which a financial package was Voluntary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract of employment or under the standing orders or laws applicable. § (vii) The scheme will be final & binding upon all the employees who opt to voluntarily retire from their employment with Pfizer under the scheme. § (viii) Employees who opt for voluntarily retirement under the scheme will not be entitled to any compensation under the provisions of Industrial Dispute Act because their cessation constitute resignation & does not constitute retrenchment or termination of employment. § (ix) - Employees who have opted for the scheme were not entitled to raise any disputes whatsoever about their separation from the services of the Co. separation as arise upon their voluntary resignation. § (x) The scheme was not negotiable & was not deemed to or be construed as a subject matter or right or service condition or contract or form part of service & shall not become a subject matter of Industrial Disputes or any other legal proceedings. The Co. invited all employees for its voluntary scheme & had absolute discretion to accept or reject any application of an employee, the scheme amounts were full & final & nothing more could be demanded, with the Co. stil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of compensation only due to indirect compulsory early retirement and if the Co. would have continued & not decided to exit the plant, appellant would have retired in the year 2027, That means on an average the appellant was having balance service of 8 years & 2 Months. Further the appellant had received the said amounts being ex-gratia (severance pay) compensation on premature cessation of his services under a scheme which was purely voluntary in nature as the same was neither in terms of employment nor the service rules of the company provided for making exgratia (severance pay) payment, these payments are thus Capital Receipts. Moreover, when the only source of Income of the appellant itself is weakened & such termination results in loss of the source of his income then the payment of compensation ought to be Capital Receipts. 17. Your Honour the Appellant would like to rely on some squarely applicable Judgment on the same matter as under: - Jurisdictional Judgment of Pune ITAT - Mahadev Dhangekar - 149 Taxmann.com 170 (2023) - wherein it has been held "Admittedly, the amount was received by the assessee after cessation of his employment with the employer company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equested to be applied. Ajay Ghose vs DCIT Mumbai ITAT wherein it has been held "The assessee has received the intimation u/s 143(1)of the Act on 04.05.2018 by email, where the A.O.(CPC) has assessed the total income of Rs. 1,16,46,980/-and raised a demand of Rs. 36,71,880/- During the financial year under consideration, the assessee has received an amount of Rs. 74,28,585/- towards severance pay due to loss of employment from the employer M/s. AREVA India Pvt Ltd because of shutting down the business operations in India. The assessee was working with the AREVA group from the year 2006. On applying the ratio of the decision to the present case, the fact remains that the 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 substantiated 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 paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant would like to explain the view taken by the Jurisdictional High Court of Bombay & other High Courts on the aspect of Capital Receipts which are as under: W. A. Guff vs. CIT - Bombay High Court - 31 ITR 826 (1957) - wherein it has in been held "In this case it is not disputed that the cessation of the assessee's 's employment was compulsory. He did not wish to leave the services of the company; he was compelled to leave it due to the intention of his employer to terminate his services. A payment was made by employer to the employee which was a voluntary payment, and which was paid to him, not for past services rendered, but as a compensation or solatium for terminating his employment. It is significant that the employer mentions that the employment was being terminated owing to the closure of the department. Thus, the employer indicates that, but for the accidental closure of the department, the SHRIKANT ZORI - CIT(A)-AY 20-21-DSTA 15 services of the employee would have been continued, and that the employee was without his job through no fault of his. The amount received was a "capital receipt" When Company winds up its operations & curtails employment against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the payment was ex gratia, that is to say, totally voluntary; it was not compensation which implies some sort of an obligation to pay". (see if capital receipts clause is added only instead of clause of compensation) Payments to employee who could not have continued in services beyond a period are ex- gratia, totally voluntarily & it is not the compensation which will imply any obligation to pay as payments are made not under any obligation are hence voluntarily. In this view, it cannot be said that the amount in question was profits in lieu of salary within the meaning of sub-cl. (3) of s. 17 of the Act. 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 as in the circumstances not necessary. We, hence, do not express any opinion on it. Such amounts cannot be profits in lieu of Salary, but are Capital Receipts. Copy of Judgement is at pg. 54-56 of Legal Compilation. CIT vs. Jamini Mohan Kar Calcutta High Court 176 ITR 127 (1988) wherein it has been held "The Tribunal, as indicated earlier, has relied on its own decision in the case of Ajit Kumar Bose relating to the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee without any right vested in the employee enforceable at law. is in the nature of capital receipt not exigible to tax as 'salary.". Delhi High Court has relied upon Jamini Mohan Kar (Cal) & CIT vs. Ajit Kumar Bose (Cal). - where employee does not have any right vested in him, then payments received are in nature of Capital receipts. Copy of Judgement is at pg. 61-68 of Legal Compilation. Khanna & Annadhanam vs. CIT - Delhi High Court 258 CTR 72 (2013)- wherein it has been held "Held, where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt-...When that source was unexpectedly terminated, it amounted to the impairment of the profit making structure or apparatus of the assessee. It was for that loss of the source of income that the compensation was calculated and paid to the assessee Thus, the amount received by the assessee represented a capital receipt Delhi High Court has relied upon Kettlewell Bullen & Company Ito(SC) & Oberoi Hot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atally injured the appellant's only source of income for the last 20 years." The mere fact that the Assessee was free to earn through other sources would not make a difference to this position. Supreme Court in Kettlewell Bullen and Company Ltd. (supra) and Oberoi Hotel Pvt. Ltd. v. CIT [1999] 236 ITR 903 (SC), this court held that if the receipt represents compensation for the loss of a source of income, it would be capital and it matters little that the assessee continues to be in receipt of income from its other similar operations." Accordingly, Court was satisfied that the question framed had to be answered in affirmative i.e. in favour of the Assessee and against the Revenue.". - Delhi High Court has relied upon Kettlewell Bullen & Company Ltd. (SC) & Oberoi Hotels Pvt Ltd. (SC) & Khanna & Annadhanam (Del). If receipts represent compensation for loss of source of income, then it would be capital receipts. Copy of Judgement is at pg. 90-94 of Legal Compilation. 19. Sir, the appellant has sufficiently demonstrated the characteristic on which the law has stood tall by upholding that any amount which has been received against loss of source of Income is required to be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Receipts. CIT vs. K. K. Roy - Supreme Court-84 ITR 701 (1971)-wherein it has been held ".... The High Court answered that question in favour of the assessee. Thereafter, this appeal has been SHRIKANT ZORI CIT(A)AY 20-21 DSTA 19 brought by the CIT after obtaining a certificate from the High Court. - 3. In our opinion, this appeal is a wholly frivolous one and the CIT was not justified in wasting public funds in filing such appeals. The point in issue here is covered by several decisions of this Court. It would suffice if we refer to the decision of this Court in CIT vs. E.D. Sheppard (1963) 48 ITR 237 (SC); (1964) 1 SCR 163. This Court has been consistently holding that the compensation of the type with which we are concerned in this appeal are capital receipts. The Supreme Court has held such appeals as frivolous & wasting of public funds & has in absolute terms held such compensation are Capital Receipts. Copy of Judgement is at pg. 120-121 of Legal Compilation. 22. Your Honour the payments were made as per the scheme which was purely voluntary & was made by Pfizer because it wanted to close down its plant, the Appellant was not entitled to claim any such Ex-Gratia compen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Salary as received herein by the Appellant. This has been upheld by various High Courts The Supreme Court." 4.2 The Ld. CIT(A)/NFAC mentioned ground No. 4 on the impugned issue for adjudication. He has not decided the same as can be seen from the relevant extract from the order of the Ld. CIT (A) reproduced above. 5. Aggrieved with such order of Ld. CIT(A)/NFAC, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto. 6. The Ld. AR submitted that the impugned issue is squarely covered in favour of the assessee by the order of this Bench of Tribunal in the case of Ashok Raghunathrao Kulkarni Vs. ITO in ITA No. 117/PUN/2024 for AY 2019-20, dated 12.08.2024. He submitted that the facts of the assessee's case in the present appeal are identical to the facts in the case of Ashok Raghunathrao Kulkarni (supra) and both the assessees were the exemployee of Pfizer Healthcare India Private Limited and covered by the same financial scheme of the company. 7. The Ld. DR did not raise any objection to the above submission of the Ld. AR. 8. We have heard the Ld. Representatives of the parties and perused the material on record. The facts are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention 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 provident or other fund, to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted the compensation received at Rs. 30,49,176/- as capital in nature by observing as under: "Brief facts of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was being paid ex gratia. There is nothing to indicate that the assessee was entitled to continue in the employment of the company up to any particular age. Under the conditions of 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 opi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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