2017 (3) TMI 1686 - HC - Income Tax

High Court affirms deletion of Rs. 75 crores for ex-gratia payments & Pension Trust Fund liability

The Pr. Commissioner of Income Tax - 4 Versus Indraprastha Power Generation Co. Ltd.

The High Court upheld the deletion of Rs. 75 crores by the CIT(A) and ITAT, emphasizing that the amount comprised ex-gratia payments and Pension Trust ... Grants receipt from the Govt. of NCT of Delhi for meeting revenue expenses, i.e. by way of ex-gratia payment upon voluntary retirement - Assessing Officer (AO) treated this receipt as income and sought to tax it - CIT(A)’s interpretation of the payable entry with respect to this was that it was an outstanding liability vis-a-vis Govt. of NCT of Delhi and the Pension Trust vis-a-vis the assessee - Held that:- We are in agreement with the conclusion as recorded by the first appellate authority that since the Government of Delhi, which is 100% owner of the assessee company, the employees who opted for VRS [Voluntary Retirement Scheme] were to be paid their dues for which approved provident fund did not have adequate/planned investment thus the government decided to provide long term capital loans of ₹ 35.90 crores to the assessee which was passed on to the Pension Fund Trust enabling the company to make payments to the employees. In view of the above noted factual matrix of the case on the issue we are unable to see any valid reason to interfere with the conclusion of the CIT(A) thus we uphold the same - no substantial question of law Issues:1. Justification of deletion of Rs. 75 crores by CIT(A) and ITAT.2. Treatment of grants received by assessee from Govt. of NCT of Delhi.3. Interpretation of payable entry with respect to ex-gratia payments and Pension Trust Fund liability.4. Correct appreciation of facts by Assessing Officer (AO) and conclusions of CIT(A) and ITAT.5. Application of VRS scheme in the case.Analysis:The High Court addressed the sole ground urged by the Revenue under Section 260A of the Income Tax Act, 1961, focusing on the justification of the deletion of Rs. 75 crores ordered by the CIT(A) and the ITAT. The assessee had received grants from the Govt. of NCT of Delhi for revenue expenses, specifically for ex-gratia payments upon voluntary retirement. Initially, the AO treated this receipt as income for taxation, but this decision was set aside. The ITAT upheld the CIT(A)'s order, highlighting that the Rs. 75 crores consisted of ex-gratia payments and Pension Trust Fund liability towards VRS pay-out. The CIT(A) interpreted the payable entry as an outstanding liability vis-a-vis the Govt. of NCT of Delhi and the Pension Trust vis-a-vis the assessee, indicating a different perspective from the AO. The ITAT concurred with the CIT(A)'s conclusion, emphasizing the factual matrix of the case and the necessity for long-term capital loans provided by the government to enable payments to employees opting for VRS.Regarding the treatment of grants received by the assessee, the High Court observed that the issue involved the bare appreciation and application of the VRS scheme in the context of the case. It was concluded that no substantial question of law arose, leading to the dismissal of the appeal and the pending application. The judgment highlighted the importance of correctly appreciating the facts and interpreting the applicable schemes and liabilities in determining the tax implications of grants received for voluntary retirement schemes. The decision ultimately supported the CIT(A) and ITAT's findings, emphasizing the need for a thorough understanding of the factual and legal aspects involved in such cases to arrive at a just conclusion.