Tax Case (Appeal) v. Sh.k.venkatesan Respondent/Appellant

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 04.07.2008 Coram : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN and THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.330 of 2008Commissioner of Income Tax,ChennaiAppellant/Respondent v. Sh.K.Venkatesan Respondent/Appellant Tax Case Appeal under section 260A of the Income Tax Act againstthe order dated 21.9.2007 in ITA No.465/Mds/2006 on the file of theIncome Tax Appellate Tribunal, Madras 'C' Bench for the assessmentyear 2004-05.For Appellants : Mr.J.Narayanasamy, Standing Counsel for IT DepartmentFor Respondents: No AppearanceJUDGMENT(Judgment of the Court was delivered byK.RAVIRAJA PANDIAN, J.) In this appeal, the revenue assails the order of the Tribunalgranting the relief of deduction under section 10(10C) of theIncome Tax Act, 1961 to the assessee, who has severed his serviceconnection from their employer – the Reserve Bank of India, under ascheme framed in the year 2003 called 'Optional Early RetirementScheme (OERS) 2003' . 2. The assessee was an employee of Reserve Bank of India andhas during the year retired under the Optional Early RetirementScheme floated by the Reserve Bank of India. The assessee in hisreturn of income for the assessment year 2000-2005, has claimedexemption under Section 10(10C), out of the compensation receivedunder the said Scheme. On a perusal of the Form 16 submitted by theassessee along with the return, it is seen that the employer hasnot deducted the exemption claimed under Section 10(10C) on thecompensation received under OERS, but has duly deducted the tax,treating the compensation as fully taxable and remitted to theGovernment account. The assessee while filing the return has made ahttps://hcservices.ecourts.gov.in/hcservices/claim under Section 10(10C) independently, outside form 16, in the computation sheet attached to the return and claimed a refund. Theassessing officer disallowed the claim of the assessee as thescheme which was adopted by the assessee was not in consonance withthe rules prescribed under Rule 2BA of the Income Tax Act.Aggrieved by the said order, the assessee preferred an appealbefore the Commissioner of Income Tax (Appeals), who upheld theorder of the assessing office and dismissed the appeal. Theassessee preferred an appeal to the Income Tax Appellate Tribunal,which allowed the appeal following the decision of this Court inthe case of VAISHALI A SHELAL AND OTHERS in I.T.A.No.6384/MDS/06.The correctness of the said order is canvassed by the appellant inthis present appeal by raising the following questions of law: "Whether in the facts and circumstances of thecase, the Tribunal was right in holding thatthe assessee is entitled to deduction undersection 10(10C), when the scheme under whichthe amount was paid does not fulfill thecriteria prescribed under Rule 2BA of theIncome Tax Rules?" 3. In spite of the notice served on the respondent on20.6.2008 and his name is printed in the cause list, there is norepresentation on behalf of the respondent and called absent. 4. Learned counsel appearing for the revenue submits that theissue involved in this appeal is covered by a decision of thisCourt dated 25.2.2008 in T.C.No.101 of 2008 in favour of theRevenue. 5. In the judgment made in T.C.No.101 of 2008, this Courtafter considering the provisions viz., Section 10(10C) of theIncome Tax Act and Rule 2BA of Income Tax Act and the Schemeframed by the Bank and the object for introduction of OptionalEarly Retirement Scheme in the Reserve Bank of India, as set out inits Administration Circular No.1 dated 11.08.2003, has allowed theappeal by answering the question of law in favour of revenue,wherein it was held as follows: 4. Learned counsel appearing for the revenue submits that theissue involved in this appeal is covered by a decision of thisCourt dated 25.2.2008 in T.C.No.101 of 2008 in favour of theRevenue. 5. In the judgment made in T.C.No.101 of 2008, this Courtafter considering the provisions viz., Section 10(10C) of theIncome Tax Act and Rule 2BA of Income Tax Act and the Schemeframed by the Bank and the object for introduction of OptionalEarly Retirement Scheme in the Reserve Bank of India, as set out inits Administration Circular No.1 dated 11.08.2003, has allowed theappeal by answering the question of law in favour of revenue,wherein it was held as follows: ".....15. From the above, it is obvious that thescheme has been introduced for the purpose of enhancementof the competitive environment of the employer banks. Thecompetitive environment was sought to be achieved bygetting rid of the employer's unproductive and unwantedemployees making them to leave voluntarily by grantingsome incentive for doing so. Such pruning of unproductiveand unwanted employees benefits the speedy competitivegrowth and prosperity of the employer bank which also havea bearing on the national economy. In addition to that,the schemes are the outcome to fulfil the desire of theemployees, who found the competitive environment toopressurizing to them and expressed their desire to have anearly exit with some benefits. It is also relevant tomention here that during the relevant period a privatehttps://hcservices.ecourts.gov.in/hcservices/schedule bank merged with ICICI bank Ltd. scheme has been introduced for the purpose of enhancementof the competitive environment of the employer banks. Thecompetitive environment was sought to be achieved bygetting rid of the employer's unproductive and unwantedemployees making them to leave voluntarily by grantingsome incentive for doing so. Such pruning of unproductiveand unwanted employees benefits the speedy competitivegrowth and prosperity of the employer bank which also havea bearing on the national economy. In addition to that,the schemes are the outcome to fulfil the desire of theemployees, who found the competitive environment toopressurizing to them and expressed their desire to have anearly exit with some benefits. It is also relevant tomention here that during the relevant period a privatehttps://hcservices.ecourts.gov.in/hcservices/schedule bank merged with ICICI bank Ltd. 16. From the reading of various clauses contained inthe scheme, it is manifest that the scheme was notintended as staff reduction measure, but a soft exitoption made available to those interested employees whowere seeking alternative option to the level ofadaptability and change, that the current environmentaldemands or those who are desirous of early retirementafter a long and exhaustive period of service with theorganisation. Thus, the schemes framed are not inaccordance with the requirement of Rule 2BA of the IncomeTax Rules. The requirement of the statutory provisions isthat the exemption from tax under section 10(10C) isavailable on the amount received under a scheme ofvoluntary retirement or a voluntary separation framed inaccordance with the guidelines prescribed and specified inRule 2B. As the schemes had not been introduced for thepurpose of making-over the reduction in the existingstrength of the employees and do not provide that thevacancy caused by the voluntary retirement or voluntaryseparation shall not be filled up, the requirements (iii)and (iv) of Rule 2BA have not been fulfilled. ..... 18. In order to entitle the person the benefit undersection 10(10C) of the Act the provisions of section 10(10C) and Rule 2BA should be complied with cumulativelyand compliance of some of them would not entitle theemployee the benefit as claimed for. 18. In order to entitle the person the benefit undersection 10(10C) of the Act the provisions of section 10(10C) and Rule 2BA should be complied with cumulativelyand compliance of some of them would not entitle theemployee the benefit as claimed for. 19. CBDT Circular No.640 has also clarified that ifall the conditions specified in section 10(10) and Rule2BA of the Rules are satisfied, then only the assesseewould be entitled to the benefit and in those cases, theemployer need not deduct at source. Thus, it is clearthat the scheme is not strictly in accordance with section10(10C) and Rule 2BA......" 6. Therefore, following the above judgment dated 25.2.2008made in T.C.No.101 of 2007, the order of the tribunal is set asideand the appeal is allowed answering the question of law in favourof the revenue. To1. The Income Tax Appellate Tribunal,Madras 'C' BenchMadras.1. The Income Tax Appellate Tribunal,Madras 'C' BenchMadras. +1 cc To M/s.Pushya Sitaraman, Advocate, SR.34816 ssn [co]gkg/14.7 T C (A).330 of 2008