2018 (4) TMI 1132 - HC - Income Tax

High Court: ICICI Bank employee wins case against Income Tax Dept demand notice

The High Court ruled in favor of the petitioner, an ICICI Bank employee, in a challenge against a demand notice from the Income Tax Department regarding a ... Entitlement to exemption u/s 10(10C) - consolidated payment made to the assessee employees under Voluntary Retirement Scheme issued by the ICICI Bank - Held that:- The impugned notice specifies the sum of ₹ 1,83,954/- for the assessment year 2004-2005. As per Section 10(10C) of the Act, the individual is entitled to exemption upto ₹ 5,00,000/-. Hon'ble Supreme Court in Chandra Ranganathan & Ors. vs. Commissioner of Income Tax [2009 (10) TMI 498 - SUPREME COURT OF INDIA] as well as Bombay High Court Commissioner of Income Tax vs. Koodathil Kallyatan Ambujakshan [2008 (7) TMI 259 - BOMBAY HIGH COURT] have categorically held that the retiring employees are eligible for exemption under Section 10(10C) of the Act. Rule 2BA of the Income Tax Rules, 1962, cannot exceed the provisions of the Act. Therefore, the demand made by the Income Tax Department is per se illegal and is not sustainable any further. - Decided in favour of assessee. Issues:Challenge to demand notice issued by Income Tax Department regarding Voluntary Retirement Scheme and exemption under Section 10(10C) of the Income Tax Act, 1961.Analysis:1. The petitioner, an employee of ICICI Bank, challenged a demand notice from the Income Tax Department related to the Voluntary Retirement Scheme. The scheme provided a consolidated payment to employees, and the issue revolved around the exemption under Section 10(10C) of the Income Tax Act, 1961.2. Section 10(10C) of the Act specifies conditions for exemption on voluntary retirement payments. The scheme must be in accordance with guidelines for economic viability. The petitioner argued that the scheme complied with the Act and the exemption limit of Rs. 5,00,000 under clause (viii) of Section 10(10C) applied.3. Rule 2BA of the Income Tax Rules, 1962 outlines requirements for exemption under Section 10(10C). The scheme must apply to employees meeting service or age criteria, result in overall reduction in staff, and not allow re-employment of retiring employees within the same management. The amount receivable should be within specified limits.4. Judicial scrutiny was applied to the Voluntary Retirement Scheme in question. The Bombay High Court and the Supreme Court had previously ruled on similar cases involving RBI employees, establishing that employees were eligible for exemption under Section 10(10C) of the Act. The Income Tax Department had issued a circular based on the Bombay High Court judgment.5. The Division Bench of the High Court held that if the tax effect is below Rs. 2,00,000, the Department need not file an appeal. In this case, the demand was for Rs. 1,90,844 for the assessment year 2004-2005, well within the exemption limit of Rs. 5,00,000 under Section 10(10C).6. The High Court, following the precedent set by the Bombay High Court and the Supreme Court, ruled in favor of the petitioner. The demand made by the Income Tax Department was deemed illegal and unsustainable, leading to the setting aside of the impugned order. The Court emphasized the finality of previous judgments and dismissed the demand, allowing the writ petition.This detailed analysis of the judgment highlights the key legal aspects and decisions made by the court regarding the challenge to the demand notice and the exemption under Section 10(10C) of the Income Tax Act, 1961 in relation to a Voluntary Retirement Scheme.