1999 (4) TMI 28 - HC - Income Tax

Former employee denied tax exemption under retirement scheme due to post-retirement approval.

The appellant, a former employee seeking income-tax exemption under a voluntary retirement scheme, was denied relief as the scheme approval post-dated his ... Exemption, Condition Precedent Issues:1. Whether the appellant is entitled to exemption from income-tax under the voluntary retirement scheme.2. Interpretation of section 10(10C) of the Income-tax Act, 1961.3. Effectiveness of the voluntary retirement scheme in relation to income-tax exemption.4. Timeliness of scheme approval for availing exemption under section 10(10C).Analysis:1. The appellant, a former employee of Tata Iron and Steel Co., sought a mandamus for the release of Rs. 84,000 deducted as income-tax from his retiral benefits under a voluntary retirement scheme. The appellant claimed that the amount was exempt from income-tax under section 10(10C) of the Income-tax Act, 1961. However, the respondents contended that the scheme did not meet the essential requirements for exemption. The single judge dismissed the writ petition, stating that the approved scheme condition was not satisfied, thus denying the appellant's claim for exemption.2. Section 10(10C) of the Income-tax Act provides for exemption up to Rs. 5 lakhs for amounts received by an employee on voluntary retirement under an approved scheme. The scheme must be framed in accordance with prescribed guidelines and approved by the relevant authority. The appellant argued that the Act was effective from August 18, 1992, and the benefit extended to employees retiring between April 1, 1992, and August 18, 1992. However, the approval for the appellant's scheme was obtained after his retirement, rendering it non-compliant with the exemption criteria.3. The appellant's reliance on a board circular clarifying the applicability of income-tax exemption to voluntary retirement schemes between April 1, 1992, and August 18, 1992, did not support his case. The circular emphasized that for exemption, the scheme must adhere to the conditions specified under section 10(10C) of the Act, including approval before the employee's retirement date. In this case, the scheme approval post-dated the appellant's retirement, disqualifying him from availing of the exemption.4. The court found that the appellant's retirement and payment occurred under a scheme that was approved after his retirement date, failing to meet the prerequisite for exemption under section 10(10C). Despite the appellant's argument regarding the scheme's delayed approval, the court upheld that the scheme must be approved before the employee's retirement to qualify for income-tax exemption. Consequently, the appeal was dismissed due to the lack of merit in the appellant's claim for exemption.