2004 (1) TMI 353 - AT - Income Tax

Tribunal Upholds CIT(A) Decision: Assessee Entitled to Relief on VRS Amount u/ss 10(10C) and 89(1.

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision that the assessee was entitled to relief under section 89(1) on the VRS ... Exemption u/s 10(10C) - Eligibility for relief u/s 89(1) on the amount received under the Voluntary Retirement Scheme (VRS) - compensation covered within the meaning of section 17(3)(i) of the Act and rule 21A(1)(c) of the Rules - HELD THAT:- In the hierarchical judicial system that we have, better wisdom of the Court below has to yield to higher wisdom of the Court above and, therefore, once an authority higher than this Tribunal has expressed an opinion on that issue, we have to respectfully follow the same. Such a High Court being a non-jurisdictional High Court does not alter the position as laid down by Hon'ble Bombay High Court in the matter of CIT v. Smt. Godavari Devi Saraf [1977 (9) TMI 24 - BOMBAY HIGH COURT]. Respectfully following these legal precedents, we hold that the amount received on VRS settlement is also, for the purposes of section 17(3) of the Act, constitutes compensation for 'termination of service'. There is also no dispute about the factual position that as a result of the assessee's having received the aforesaid 'profit in lieu of salary' his income is assessed at a rate higher than the rate at which it would otherwise have been assessed, it is also not in dispute that under rule 21A(1)(c) of the IT Rules. On these facts, in our considered view, the conditions laid down under section 89(1) are satisfied and, from this point of view, the assessee is eligible for relief. There is no dispute about the admissibility of exemption upto an amount of Rs. 5 lakhs, out of the sum received by the assessee under the VRS, u/s 10(10C). It provides that any amount received by an employee of any company at the time of his voluntary retirement, in accordance with the scheme of voluntary retirement, to the extent such amount does not exceed Rs. 5 lakhs. In our considered view, the implication of this proviso is only that in case an assessee is allowed an exemption u/s 10(10C) in one assessment year, such an assessee is not entitled to exemption u/s 10(10C) in any other assessment year. In other words, the benefit u/s 10(10C) is a one time benefit. As a matter of fact, it is difficult for us to comprehend as to what is the relevance of this proviso for the purpose of relief u/s 89(1). Section 10(10C) and section 89(1) are two different sections and the reference is specifically for section 10(10C). In any case, as rightly pointed out by the learned counsel section 89(1) does not grant an exemption. The distinction between an 'exemption' and a 'relief cannot be ignored or just washed away. Even if these restrictions be said to be desirable for proper working of the section and in harmony with the intent of the legislature, as is strenuously argued by the learned senior DR, it is not open to us to supply the casus omissus. The only effect of exemption u/s 10(10C) is that to the extent of Rs. 5,00,000, as is specified in section 10(10C), VRS compensation received by the assessee does not form part of the total income, but once the balance amount is exigible to tax u/s 17(3), all other consequences under the Act, including eligibility to relief u/s 89(1), follows. We, therefore, reject Revenue's contention that in view of the contents of, and intent of, second proviso to section 10(10C), relief u/s 89(1) is not admissible. As for learned DR's reliance on the CBDT communication, we hardly need to state that law is trite that a circular, even under section 119, cannot be thrust upon the assessee. The assessee can derive advantage from a circular but it does not bind the assessee in any way nor can it impose any taxability on the assessee. The assessee is entitled to ignore a circular if its terms are beyond the provisions of the Act. It is only a benevolent circular which is binding, and that too on the Revenue. If authority is needed, the same is contained in numerous judicial precedents including judgments of Hon'ble jurisdictional High Court in the case of Smt. K. Bhoomiamma v. CIT [1991 (6) TMI 48 - KARNATAKA HIGH COURT], of Hon'ble Calcutta High Court in the case of CIT v. Ramchandra Poddar Charitable Trust [1983 (7) TMI 4 - CALCUTTA HIGH COURT]. As the Hon'ble Supreme Court has observed in the case of Keshavji Ravji & Co. [1990 (2) TMI 1 - SUPREME COURT], Board cannot pre-empt a judicial interpretation of scope and ambit of a provision of the Act by issuing a circular on the subject. It is also well settled in law that Tribunal is not bound to take judicial notice of the circulars, issued by the Board, as is held in the case of Motor Industries Co. Ltd. v. CIT [1986 (2) TMI 17 - KARNATAKA HIGH COURT], by the Hon'ble jurisdictional High Court. Thus, we are of the considered view that the assessee was indeed eligible for relief u/s 89(1) and merely because the assessee was allowed exemption u/s 10(10C), this relief could not have been declined to the assessee. Accordingly, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. In the result, Revenue's appeal is dismissed. Issues Involved:1. Eligibility for relief u/s 89(1) on VRS amount after exemption u/s 10(10C).2. Interpretation of VRS amount as compensation under section 17(3)(i) and rule 21A(1)(c).3. Application of judicial precedents and liberal interpretation of beneficial provisions.Summary:1. Eligibility for Relief u/s 89(1) on VRS Amount After Exemption u/s 10(10C):The primary issue was whether the assessee was eligible for relief u/s 89(1) on the VRS amount received after the exemption u/s 10(10C). The CIT(A) held that the assessee was entitled to relief u/s 89(1) for the amount exceeding Rs. 5,00,000, which was exempt under section 10(10C). The CIT(A) reasoned that sections 10(10C) and 89(1) are independent and not mutually exclusive, allowing the assessee to claim both benefits. The Tribunal upheld this view, stating that the relief under section 89(1) is applicable as the VRS compensation is taxed as 'profit in lieu of salary' under section 17(3).2. Interpretation of VRS Amount as Compensation Under Section 17(3)(i) and Rule 21A(1)(c):The CIT(A) found that the VRS amount, after the exemption u/s 10(10C), constituted compensation for the surrender of the right to continue employment, thus qualifying as 'profit in lieu of salary' under section 17(3)(i). This interpretation was supported by judicial precedents, including the Madras High Court's decisions in CIT v. J. Visalakshi and CIT v. M. Raman. The Tribunal agreed, noting that the VRS amount is indeed compensation for 'termination of service' and thus eligible for relief under section 89(1) as per rule 21A(1)(c).3. Application of Judicial Precedents and Liberal Interpretation of Beneficial Provisions:The CIT(A) applied the principles from the Madras High Court's judgments, emphasizing that sections 10(10C) and 89(1) should be interpreted liberally to grant benefits to the assessee. The Tribunal concurred, stating that the provisions of section 89(1) are beneficial and should be construed in favor of the assessee. The Tribunal also rejected the Revenue's reliance on CBDT instructions, affirming that judicial precedents take precedence over administrative instructions.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that the assessee was eligible for relief u/s 89(1) on the VRS amount received after the exemption u/s 10(10C). The Tribunal emphasized the independent nature of sections 10(10C) and 89(1), the interpretation of VRS compensation as 'profit in lieu of salary', and the liberal construction of beneficial provisions.