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 2008 Commissioner of Income Tax, Chennai Appellant v. Sh.K.Venkatesan Respondent Tax Case Appeal under section 260A of the Income Tax Act against the order dated 21.9.2007 in ITA No.465/Mds/2006 on the file of the Income Tax Appellate Tribunal, Madras 'C' Bench for the assessment year 2004-05. For Appellants : Mr.J.Narayanasamy, Standing Counsel for IT Department For Respondents : No Appearance JUDGMENT
(Judgment of the Court was delivered by
K.RAVIRAJA PANDIAN, J.)
In this appeal, the revenue assails the order of the Tribunal granting the relief of deduction under section 10(10C) of the Income Tax Act, 1961 to the assessee, who has severed his service connection from their employer the Reserve Bank of India, under a scheme framed in the year 2003 called ‘Optional Early Retirement Scheme (OERS) 2003’ .
2. The assessee was an employee of Reserve Bank of India and has during the year retired under the Optional Early Retirement Scheme floated by the Reserve Bank of India. The assessee in his return of income for the assessment year 2000-2005, has claimed exemption under Section 10(10C), out of the compensation received under the said Scheme. On a perusal of the Form 16 submitted by the assessee along with the return, it is seen that the employer has not deducted the exemption claimed under Section 10(10C) on the compensation received under OERS, but has duly deducted the tax, treating the compensation as fully taxable and remitted to the Government account. The assessee while filing the return has made a claim under Section 10(10C) independently, outside form 16, in the computation sheet attached to the return and claimed a refund. The assessing officer disallowed the claim of the assessee as the scheme which was adopted by the assessee was not in consonance with the rules prescribed under Rule 2BA of the Income Tax Act. Aggrieved by the said order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who upheld the order of the assessing office and dismissed the appeal. The assessee preferred an appeal to the Income Tax Appellate Tribunal, which allowed the appeal following the decision of this Court in the 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 in this present appeal by raising the following questions of law:
“Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is entitled to deduction under section 10(10C), when the scheme under which the amount was paid does not fulfill the criteria prescribed under Rule 2BA of the Income Tax Rules?”
3. In spite of the notice served on the respondent on 20.6.2008 and his name is printed in the cause list, there is no representation on behalf of the respondent and called absent.
4. Learned counsel appearing for the revenue submits that the issue involved in this appeal is covered by a decision of this Court dated 25.2.2008 in T.C.No.101 of 2008 in favour of the Revenue.
5. In the judgment made in T.C.No.101 of 2008, this Court after considering the provisions viz., Section 10(10C) of the Income Tax Act and Rule 2BA of Income Tax Act and the Scheme framed by the Bank and the object for introduction of Optional Early Retirement Scheme in the Reserve Bank of India, as set out in its Administration Circular No.1 dated 11.08.2003, has allowed the appeal by answering the question of law in favour of revenue, wherein it was held as follows:
“…..15. From the above, it is obvious that the scheme has been introduced for the purpose of enhancement of the competitive environment of the employer banks. The competitive environment was sought to be achieved by getting rid of the employer’s unproductive and unwanted employees making them to leave voluntarily by granting some incentive for doing so. Such pruning of unproductive and unwanted employees benefits the speedy competitive growth and prosperity of the employer bank which also have a bearing on the national economy. In addition to that, the schemes are the outcome to fulfil the desire of the employees, who found the competitive environment too pressurizing to them and expressed their desire to have an early exit with some benefits. It is also relevant to mention here that during the relevant period a private schedule bank merged with ICICI bank Ltd.
16. From the reading of various clauses contained in the scheme, it is manifest that the scheme was not intended as staff reduction measure, but a soft exit option made available to those interested employees who were seeking alternative option to the level of adaptability and change, that the current environmental demands or those who are desirous of early retirement after a long and exhaustive period of service with the organisation. Thus, the schemes framed are not in accordance with the requirement of Rule 2BA of the Income Tax Rules. The requirement of the statutory provisions is that the exemption from tax under section 10(10C) is available on the amount received under a scheme of voluntary retirement or a voluntary separation framed in accordance with the guidelines prescribed and specified in Rule 2B. As the schemes had not been introduced for the purpose of making-over the reduction in the existing strength of the employees and do not provide that the vacancy caused by the voluntary retirement or voluntary separation 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 under section 10(10C) of the Act the provisions of section 10(10C) and Rule 2BA should be complied with cumulatively and compliance of some of them would not entitle the employee the benefit as claimed for.
19. CBDT Circular No.640 has also clarified that if all the conditions specified in section 10(10) and Rule 2BA of the Rules are satisfied, then only the assessee would be entitled to the benefit and in those cases, the employer need not deduct at source. Thus, it is clear that the scheme is not strictly in accordance with section 10(10C) and Rule 2BA.
…..”
6. Therefore, following the above judgment dated 25.2.2008 made in T.C.No.101 of 2007, the order of the tribunal is set aside and the appeal is allowed answering the question of law in favour of the revenue.
(K.R.P.,J.) (P.P.S.J.,J.) Index : Yes 04.07.2008 Internet : Yes K.RAVIRAJA PANDIAN, J. and P.P.S.JANARTHANA RAJA, J. usk T C (A).330 of 2008 4.7.2008