2023 (9) TMI 1524 - AT - Income Tax

HMT employee receives full tax exemption under section 10(10B) for voluntary retirement compensation during company closure

Shri Suresh Pal Chauhan Versus The ITO Ward-4, Panchkula And Shri Surinder Singh Versus The ITO Ward-4, Panchkula And Shri Kishori Lal Batra S/o Taj Bhan Batra And Shri Bhup Singh S/o Darlo Singh Versus The ITO Ward-1, Panchkula And Shri Mehar Singh Saini S/o Babu Ram And The ITO Ward-1, Panchkula

The ITAT Chandigarh held that the assessee was eligible for exemption under section 10(10B) rather than 10(10C) for VRS/VSS compensation received from ... Exemption u/s 10(10C) v/s 10(10B) - relief u/s 89 simultaneously claimed - payment of ex-gratia under the VRS/VSS scheme - whether the assessee is eligible for exemption under section 10(10B) or under section 10(10C)? - HELD THAT:- CIT(A) has rightly held that the money has been earmarked under budgetary support by the Government of India to HMT for payment of outstanding salary / wages and other employee related dues and also for closure of HMT Tractor Division by offering attractive VRS/VSS at 2007 notional pay scales. It has been rightly held that the purpose behind this scheme in no uncertain terms is to rehabilitate the employees of HMTL-TD as the increase in the cost of living has made it very difficult for them to survive and meet their financial obligations and the Government thought it fit to offer this package to enable the employees to come out of the financial crises. If such was the sanction made by the Central Government, it undoubtedly would qualify the parameters laid down under sub-section (10B) of Section 10 of the Income Tax Act as the monetary benefit which will accrue to the employees is in the nature of a compensation, which is pursuant to a decision taken by the Government of India specifically for the employees of HMT. CIT(A) has rightly held that the facts of the present case are pari-materia with that of Hindustan Photo Films [2017 (6) TMI 1396 - MADRAS HIGH COURT] which has been decided and the matter therein has attained finality in view of dismissal of the SLP by the Hon’ble Supreme Court [2018 (2) TMI 2118 - SC ORDER] - Therefore, we are of the considered view that in the instant case, the whole of the amount of voluntary retirement compensation would be exempted from income tax in terms of the second proviso to Section 10(10B) of the Act. Thus the assessee is held eligible for exemption u/s 10(10B) on whole of the amount received of voluntary retirement compensation and the AO is directed to allow necessary relief to the assessee. In the result, the ground no. 3 of the assessee’s appeal is allowed. Relief u/s 89 in respect of net gratuity (after excluding exemption claimed u/s 10(10) - On perusal of section 89, it talks about an assessee who is in receipt of a sum of money in the nature of salary and as per section 17(1)(iii), salary includes gratuity. In view of the same, the AO is directed to provide appropriate relief as per section 89 in respect of net gratuity amount which is being brought to tax. The ground of appeal is accordingly allowed. Issues Involved:1. Exemption under Section 10(10B) vs. Section 10(10C) of the Income Tax Act, 19612. Claim for Tax Relief under Section 89 of the Income Tax Act, 1961Detailed Analysis:1. Exemption under Section 10(10B) vs. Section 10(10C) of the Income Tax Act, 1961The primary issue revolves around whether the compensation received by the assessees under the Voluntary Retirement Scheme (VRS) on the closure of HMT Ltd. (Tractor Division) should be exempt under Section 10(10B) or Section 10(10C) of the Income Tax Act, 1961.Arguments by the Assessee:- The assessees argued that the compensation received should be exempt under Section 10(10B) as it was received on the closure of the HMT Tractor Division, which qualifies as retrenchment compensation.- They cited precedents where similar compensation was treated as exempt under Section 10(10B) by various appellate authorities and courts, including the Hon'ble Madras High Court in the case of Hindustan Photo Film Workers vs. Government of India.- The assessees highlighted that the VRS scheme was essentially a forced retrenchment due to the closure of the division, and thus, the compensation should be treated as retrenchment compensation under Section 10(10B).Arguments by the Revenue:- The Revenue contended that the compensation should be exempt under Section 10(10C) as it was received under a VRS scheme, which is typically covered under Section 10(10C).- It was argued that the assessees opted for VRS voluntarily and were not retrenched under the Industrial Disputes Act, 1947, thus making them eligible for exemption under Section 10(10C) and not Section 10(10B).Tribunal's Findings:- The Tribunal analyzed the provisions of Sections 10(10B) and 10(10C) and noted the fundamental differences between the two sections.- It was observed that Section 10(10B) applies to compensation received at the time of retrenchment, including compensation received on the closure of an undertaking, while Section 10(10C) applies to amounts received under voluntary retirement schemes.- The Tribunal referred to the decision of the Hon'ble Madras High Court in the case of Hindustan Photo Film Workers, where it was held that compensation received under a similar scheme on the closure of an industry qualifies for exemption under Section 10(10B).- The Tribunal noted that the VRS scheme in question was introduced due to the closure of the HMT Tractor Division, and employees who did not opt for VRS would be retrenched under the Industrial Disputes Act, 1947.- Based on the intent and objective of the scheme, the Tribunal concluded that the compensation received by the assessees qualifies for exemption under Section 10(10B) and not Section 10(10C).2. Claim for Tax Relief under Section 89 of the Income Tax Act, 1961The secondary issue involved the assessees' claim for tax relief under Section 89 on the gratuity amount and VRS compensation.Arguments by the Assessee:- The assessees claimed tax relief under Section 89 on the gratuity amount and VRS compensation, arguing that there is no restriction on claiming relief under Section 89 for the gratuity amount.- They acknowledged that relief under Section 89 cannot be claimed for VRS compensation if exemption under Section 10(10C) is claimed, but maintained that such restriction does not apply to gratuity.Arguments by the Revenue:- The Revenue argued that relief under Section 89 should not be allowed as the assessees claimed exemption under Section 10(10C) for VRS compensation.- They contended that the proviso to Section 89 restricts claiming relief under Section 89 if exemption under Section 10(10C) is claimed.Tribunal's Findings:- The Tribunal noted that the assessees are not entitled to relief under Section 89 on the VRS compensation if exemption under Section 10(10C) is claimed, as per the proviso to Section 89.- However, the Tribunal observed that there is no such restriction on claiming relief under Section 89 for the gratuity amount.- The Tribunal directed the Assessing Officer to provide appropriate relief under Section 89 for the net gratuity amount, after excluding the amount of exemption claimed under Section 10(10) of the Act.Conclusion:- The Tribunal held that the compensation received by the assessees under the VRS scheme on the closure of HMT Ltd. (Tractor Division) qualifies for exemption under Section 10(10B) of the Income Tax Act, 1961.- The Tribunal directed the Assessing Officer to allow the exemption under Section 10(10B) and provide appropriate relief under Section 89 for the net gratuity amount.