Section 89 read with section 10(10C) of the Income-tax Act, 1961 - Salaries -

Court :
IN THE ITAT MUMBAI BENCH ‘SMC’

Brief :
Section 89 read with section 10(10C) of the Income-tax Act, 1961 - Salaries - Relief available when salary is paid in arrears or in advance - Assessment years 2001-02 and 2002-03 - Assessee, a bank employee, opted for retirement under Voluntary Retirement Scheme (VRS) as envisaged by employer - He received from bank certain amount by way of compensation described as ex-gratia and claimed exemption of Rs. 5 lakhs out of said amount under section 10(10C) and on balance claimed relief under section 89 - Assessing Officer denied relief under section 89 holding that exemption under section 10(10C) though available in case of voluntary retirement, relief under section 89 was not applicable in case of VRS - Whether assessee was entitled to relief under section 89 - Held, yes Circulars and Notifications Board’s Letter F. No. 174/5/2001 - ITA - 1, dated 24-4-2001 FACTS The assessee, a bank employee, opted for retirement under Voluntary Retirement Scheme (VRS) as envisaged by the employer. He received from the bank certain amount by way of compensation described as ex-gratia and claimed exemption of Rs. 5 lakhs out of the said amount under section 10(10C) and on the balance claimed relief under section 89. The Assessing Officer held that exemption under section 10(10C) though available in the case of voluntary retirement, the relief under section 89 was not applicable in the case of VRS inasmuch as termination of the service was different from voluntary retirement. He further held that as per the second proviso to section 10(10C) the assessee was to be denied any benefit whatever in respect of the taxable portion of the compensation, that such a denial was two fold - first, denial of exemption being availed more than once in a life time, and second, denial of relief in any form under the statute in any other year, and that the claim of the assessee would fall under the second category. The Assessing Officer also held that the relief under section 89 was only in respect of salary received in advance or for arrears received, that the relief was only to moderate the impact of taxation if the tax rates were different for different years, that the relief had to be allowed after ascertaining the average tax payable for the year on the total income after including the taxable compensation and average of the tax payable for three preceding years, after adding to each of the years 1/3rd of the additional compensation, that the difference was the relief admissible, and that if taxable portion of compensation or ex-gratia was allowed relief under section 89, the assessee would be allowed benefit by way of reduced tax on the taxable compensation or ex-gratia. The Assessing Officer further held that the decisions of the Madras High Court in the cases of CIT v. J. Visalakshi [1994] 206 ITR 531/74 Taxman 532 and in the case of CIT v. M. Raman [2000] 245 ITR 856/[2002] 120 Taxman 338 (Mad.) were relevant for the assessment year 1982-83 and not for the years under consideration. The Assessing Officer, therefore, disallowed the claim of the assessee for relief under section 89 in respect of taxable portion of the compensation or ex-gratia. On appeal, the Commissioner (Appeals) allowed the assessee’s claim for relief under section 89. He held that the issue involved in the instant case was squarely covered by the decisions of the Madras High Court in the cases of J. Visalakshi (supra) and M. Raman (supra). He further held that the Board vide letter F. No. 174/5/2001-ITA-1, dated 23-4-2001, reiterated that the compensation received under VRS could not be distributed in more than one assessment year and this would only mean that if an employee had availed exemption under section 10(10C), then he could not have any exemption for any other year. On appeal by the department:

Citation :
Income-tax Officer, Ward 26(1)-4, Mumbai v. Rajendra C. Khambkar K. P. T. THANGAL, VICE PRESIDENT IT APPEAL NOS. 5264,5309 TO 5313 AND 5329 TO 5332 (MUM.) OF 2005 [ASSESSMENT YEARS 2001-02 AND 2002-03]