A.kumarappan v. The Commissioner Of Income Tax – I, Tiruchirappalli

BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED : 26.04.2018 CORAM: THE HONOURABLE MR.JUSTICE M.GOVINDARAJ W.P(MD)No.8436 of 2013 andM.P.(MD)No.2 of 2013 A.Kumarappan Vs. : Petitioner 1.The Commissioner of Income Tax – I, Tiruchirappalli. 2.The Income Tax Officer, Ward- III (1), Tiruchirappalli.: Respondents PRAYER: Writ Petition is filed under Article 226 of the Constitutionof India praying for issuance of a Writ of Certiorarified Mandamus,to call for the records pertaining to the Impugned order cum demandnotice in Pan /Ward-III(1)/TRY/2013-14 dated 25.04.2013passed by the 2nd respondent and quash the same and directing therespondents to allow the deduction under Section 10(10C) of theIncome Tax Act. For Petitioner : Mr.S.M.S.Johnny BashaFor Respondents: Mrs.S.Srimathy,Standing Counsel ORDER Challenging the demand notice dated 25.04.2013 issued by theIncome Tax Department, the writ petitioner is before this Court. 2. According to the petitioner, he is an employee of ICICIBank. The Bank has introduced the Voluntary Retirement Scheme, bywhich, a consolidated payment was made to the employees. UnderChapter III of the Income Tax Act, 1961, the incomes not included intotal income are specified, in which, the agricultural income andincome received by an individual as a member of a Hindu undividedfamily are exempted and so many other exemptions are there. 3. Insofar as this case is concerned, Section 10(10C) of theIncome Tax Act, 1961, is relevant, which reads as under:"10(10C)- any amount received or receivable by anhttps://hcservices.ecourts.gov.in/hcservices/employee of - (i) a public sector company; or (ii) any other company; or (iii) an authority established under a Central, Stateor Provincial Act; or (iv) a local authority ; or (v) a co-operative society; or(vi) a University established or incorporated by orunder a Central, State or Provincial Act and an institutiondeclared to be a University under section 3 of theUniversity Grants Commission Act, 1956 (3 of 1956); or(vii) an Indian Institute of Technology within themeaning of clause (g) of section 3 of the Institutes ofTechnology Act, 1961 (59 of 1961) ; or (viia) any State Government; or (viib) the Central Government; or(viic) an institution, having importance throughoutIndia or in any State or States, as the Central Governmentmay, by notification in the Official Gazette, specify inthis behalf; or (viii) such institute of management as the CentralGovernment may, by notification in the Official Gazette,specify in this behalf, On his voluntary retirement or termination of hisservice, in accordance with any scheme or schemes ofvoluntary retirement or in the case of a public sectorcompany referred to in sub-clause (i), a scheme ofvoluntary separation, to the extent such amount does notexceed five lakh rupees; Provided that the schemes of the said companies orauthorities or societies or Universities or the Institutesreferred to in sub-clauses (vii) and (viii), as the casemay be, governing the payment of such amount are framed inaccordance with such guidelines including inter aliacriteria of economic viability as may be prescribed: Provided further that where exemption has been allowedto an employee under this clause for any assessment year,no exemption thereunder shall be allowed to him in relationto any other assessment year:Provided also that where any relief has been allowed toan assessee under section 89 for any assessment year inrespect of any amount received or receivable on hisvoluntary retirement or termination of service or voluntaryseparation, no exemption under this clause shall be allowedto him in relation to such, or any other, assessmentyear." Provided further that where exemption has been allowedto an employee under this clause for any assessment year,no exemption thereunder shall be allowed to him in relationto any other assessment year:Provided also that where any relief has been allowed toan assessee under section 89 for any assessment year inrespect of any amount received or receivable on hisvoluntary retirement or termination of service or voluntaryseparation, no exemption under this clause shall be allowedto him in relation to such, or any other, assessmentyear." 4. Clause (viii) of Section 10(10C) specified a limit ofRs.5,00,000/-. Rule 2BA of the Income Tax Rules, 1962 reads asunder:"2BA. The amount received by an employee of- (i) a public sector company; or(ii) any other company; or(iii) an authority established under a Central, Stateor Provincial Act; or https://hcservices.ecourts.gov.in/hcservices/ (iv) a local authority; or (v) a co-operative society; or(vi) a University established or incorporated by orunder a Central, State or Provincial Act and an institutiondeclared to be a University under section 3 of theUniversity Grants Commission Act, 1956 (3 of 1956); or(vii) an Indian Institute of Technology within themeaning of clause (g) of section 3 of the Institutes ofTechnology Act, 1961 (59 of 1961); or (viia) an institution, having importance throughoutIndia or in any State or States, as the Central Governmentmay, by notification in the Official Gazette, specify inthis behalf; or (viii) such institute of management as the CentralGovernment may, by notification in the Official Gazette,specify in this behalf, at the time of his voluntary retirement or voluntaryseparation shall be exempt under clause (10C) of section 10only if the scheme of voluntary retirement framed by theaforesaid company or authority or co-operative society orUniversity or institute, as the case may be or if thescheme of voluntary separation framed by a public sectorcompany, is in accordance with the following requirements,namely:- (i) it applies to an employee who has completed 10years of service or completed 40 years of age;(ii) it applies to all employees (by whatever namecalled) including workers and executives of a company or ofan authority or of a co-operative society, as the case maybe, excepting directors of a company or of a co-operativesociety; (iii) the scheme of voluntary retirement or voluntaryseparation has been drawn to result in overall reduction inthe existing strength of the employees;(iv) the vacancy caused by the voluntary retirement orvoluntary separation is not to be filled up;(v) the retiring employee of a company shall not beemployed in another company or concern belonging to thesame management; (vi) the amount receivable on account of voluntaryretirement or voluntary separation of the employee does notexceed the amount equivalent to three months salary foreach completed year of service or salary at the time ofretirement multiplied by the balance months of service leftbefore the date of his retirement on superannuation: Provided that requirement of (i) above would not beapplicable in case of amount received by an employee of apublic sector company under the scheme of voluntaryseparation framed by such public sector company." https://hcservices.ecourts.gov.in/hcservices/5. According to the rule, any Scheme shall be in conformitywith Rule 2BA of the Income Tax Rules, 1962. with Rule 2BA of the Income Tax Rules, 1962. 6. According to the Income Tax Department, Voluntary RetirementScheme issued by the ICICI Bank is not in conformity with the Rules.Therefore, the employees are not entitled to any exemption underSection 10(10C) of the Income Tax Act, 1961 (hereinafter referred toas "the Act"). Provided that requirement of (i) above would not beapplicable in case of amount received by an employee of apublic sector company under the scheme of voluntaryseparation framed by such public sector company." https://hcservices.ecourts.gov.in/hcservices/5. According to the rule, any Scheme shall be in conformitywith Rule 2BA of the Income Tax Rules, 1962. with Rule 2BA of the Income Tax Rules, 1962. 6. According to the Income Tax Department, Voluntary RetirementScheme issued by the ICICI Bank is not in conformity with the Rules.Therefore, the employees are not entitled to any exemption underSection 10(10C) of the Income Tax Act, 1961 (hereinafter referred toas "the Act"). 7. The said Voluntary Retirement Scheme was put to judicialscrutiny in view of Rule 2BA of the Income Tax Rules, 1962. Therewere different views by various High Courts. Ultimately, in thejudgment of Commissioner of Income Tax vs. Koodathil KallyatanAmbujakshan (2008) 219 CTR (Bom) 80, the Bombay High Court dealtwith Voluntary Retirement Scheme framed by RBI and held that theexemption under Section 10(10C) of the Act was applicable to theemployees, who had taken benefit of the Scheme framed by RBI andobserved as under: "10.............................. Merely because thescheme may not expressly set out that the posts will not befilled in cannot result in the scheme not being a schemefalling under s.10(10C) r/w r.2BA of the Rules, bearing inmind the procedural nature of the rules. It will have to beread in harmonious construction with the substantiveprovisions of the Act so as not to render it ultra vires theprovisions of the substantive provisions of the Act." Against the judgment of the Bombay High Court, the Income TaxDepartment has not preferred any appeal and the judgment hasattained finality. However, in the case of Chandra Ranganathan &Ors. vs. Commissioner of Income Tax, Chennai, dated 21.10.2009, inCivil Appeal Nos.6997 - 7002 of 2009, the Hon'ble Supreme Courtdeclared that the retiring employees of the RBI would be eligiblefor exemption under Section 10(10C) of the Act and set aside theorder passed by the Madras High Court, based on the circular issuedby the Income Tax Department. 8. It is pertinent to note that pursuant to the judgment of theBombay High Court in Commissioner of Income Tax vs. KoodathilKallyatan Ambujakshan (2008) 219 CTR (Bom) 80, the Income TaxDepartment issued a circular that the retiring employees of RBIwould be eligible for exemption under Section 10(10C) of the IncomeTax Act, 1961. 9. While the matter stood thus, the Hon'ble Division Bench ofthis Court in Tax Case (Appeal) Nos.1210, 1217, 1249 and 1250 of2009, dated 23.12.2009 [Mr.S.Parthasarathy vs. The AssistantCommissioner of Income Tax Salary Circle III, Chennai-34], has heldthat if the tax effect is below Rs.2,00,000/-, which has beenprescribed as a monetary limit by the circular of the Central Boardof Direct Taxes in Instruction No.2/2005, dated 24.10.2005, theDepartment need not have to file an appeal to the Tribunal and thehttps://hcservices.ecourts.gov.in/hcservices/Tribunal also has not taken the circular into consideration andhence set aside the impugned demands. 10. In the instant case also, the impugned notice specifies thesum of Rs.1,95,600/- for the assessment year 2004-2005. As perSection 10(10C) of the Act, the individual is entitled to exemptionupto Rs.5,00,000/-. The Hon'ble Supreme Court as well as Bombay HighCourt have categorically held that the employees are eligible forexemption under Section 10(10C) of the Act. Rule 2BA of the IncomeTax Rules, 1962, cannot exceed the provisions of the Act. Therefore,the demand made by the Income Tax Department is per se illegal andis not sustainable any further. 10. In the instant case also, the impugned notice specifies thesum of Rs.1,95,600/- for the assessment year 2004-2005. As perSection 10(10C) of the Act, the individual is entitled to exemptionupto Rs.5,00,000/-. The Hon'ble Supreme Court as well as Bombay HighCourt have categorically held that the employees are eligible forexemption under Section 10(10C) of the Act. Rule 2BA of the IncomeTax Rules, 1962, cannot exceed the provisions of the Act. Therefore,the demand made by the Income Tax Department is per se illegal andis not sustainable any further. 11. As discussed above, the matter has attained finality inCommissioner of Income Tax vs. Koodathil Kallyatan Ambujakshan(2008) 219 CTR (Bom) 80 and the same stands confirmed by the Hon'bleSupreme Court in Chandra Ranganathan & Ors. vs. Commissioner ofIncome Tax, Chennai, dated 21.10.2009, in Civil Appeal Nos.6997 -7002 of 2009. Thereafter, the Special Leave Petitions filed inrespect of orders of the Division Bench of this Court inS.L.P.Nos.5281 - 5339/2014, etc., batch were dismissed by theHon'ble Supreme Court leaving the question of law kept open, by anorder dated 08.10.2014 and again, in Civil Appeal Nos.8908 of 2013,etc., batch, except Civil Appeal Nos.51 of 2010 and 4411 of 2010,all other appeals were dismissed by a common order dated 28.01.2015.This Court respectfully follow the decision of the Hon'ble SupremeCourt and the Hon'ble Division Bench of this Court. Therefore, thedemand made by the Income Tax Department is not sustainable in law.Accordingly, the Writ Petition is allowed and the impugned orderdated 25.04.2013 is set aside. No costs. Consequently, the connectedMiscellaneous Petition is closed. Sd/-Assistant Registrar(CS-III) /True copy/ Sub Assistant Registrar TO +1cc to M/s.S.Srimathy, Advocate, SR.No.63787. +1cc to Mr.S.M.S.Johnny Basha, Advocate, SR.No.63788. SM Order made inW.P(MD)No.8436 of 2013Dated:26.04.2018 https://hcservices.ecourts.gov.in/hcservices/