2009 (12) TMI 103 - HC - Income Tax

Court favors assessee, upholds tax limit under CBDT circular, dismisses Departmental appeal.

The Court ruled in favor of the assessee, focusing on the prescribed tax effect limit outlined in the circular by the Central Board of Direct Taxes. The ... Exemption under Section 10(10C) of the Income Tax Act, 1961 in respect of the amount received under the Early Retirement Option of the ICICI Bank - The assessee is an individual and was employed in ICICI Bank. He took voluntary retirement under the Early Retirement Option (hereinafter referred to as the ERO) floated by the ICICI Bank. The ERO cash compensation of Rs.16,96,780/- was received by the assessee. For the assessment year 2004-2005, the assessee filed his return of income on 16.6.2004 declaring a total income of Rs.2,27,710/- and claimed a refund of Rs.2,60,470/-. The assessee claimed exemption under Section 10(10C) of the Act to the extent of Rs.5 lakhs out of the compensation received under the said scheme. Subsequently, the assessee filed a revised return on 22.12.2004 admitting an income of Rs.11,96,780/-, which was processed under Section 143(1) of the Act and a refund of Rs.1,90,755/- was granted. Later on, the case was taken up for scrutiny by issuance of a notice under Section 143(2) of the Act and in the assessment under Section 143(3) of the Act, the Assessing Officer took the view that the ERO scheme of the ICICI Bank did not fulfill the conditions enumerated in Sub.Clauses (iii) and (iv) of Rule 2BA of the Income Tax Rules (hereinafter referred to as the Rules) and that the exemption under Section 10(10C) of the Act cannot at all be allowed. The scrutiny assessment was completed on 26.12.2006 denying exemption of Rs.5 lakhs under Section 10(10C) of the Act and the total income was determined at Rs.16,96,780/-. – CIT(A) decided in favor of assessee – ITAT decided against the assessee - Held that – the scheme is not entitled for exemption – but since the tax effect is less than Rs. 2 lakhs, the appeal is decided in favour of assessee and against the revenue Issues:1. Entertaining Departmental appeal contrary to circular2. Entitlement to exemption under Section 10(10C) of the Income Tax ActEntertaining Departmental appeal contrary to circular:The appeals were filed against the orders of the Income Tax Appellate Tribunal based on substantial questions of law. The first issue revolved around whether the Tribunal was justified in entertaining the Departmental appeal, which contradicted Instruction No.2/2005 by the Central Board of Direct Taxes. The circular stated that the Department should not appeal if the tax effect involved is less than Rs.2 lakhs. The Court considered the applicability of this circular in the case at hand.Entitlement to exemption under Section 10(10C) of the Income Tax Act:The second issue involved the entitlement to exemption under Section 10(10C) of the Income Tax Act. The case concerned an individual who took voluntary retirement under the Early Retirement Option (ERO) offered by ICICI Bank. The individual received compensation of Rs.16,96,780 and claimed exemption under Section 10(10C) for a portion of this amount. The Assessing Officer denied the exemption, leading to an appeal by the assessee. The Commissioner of Income Tax (Appeals) initially allowed the appeal, but the Revenue challenged this decision before the Tribunal. The Tribunal ruled in favor of the Revenue based on a previous decision regarding the ICICI Bank scheme's compliance with specific rules. However, the Court focused on the tax effect being less than Rs.2 lakhs, as per the circular, and disposed of the appeals in favor of the assessee on this ground.In conclusion, the judgment addressed the issues of entertaining Departmental appeal contrary to a circular and entitlement to exemption under Section 10(10C) of the Income Tax Act, ultimately ruling in favor of the assessee based on the prescribed tax effect limit outlined in the circular by the Central Board of Direct Taxes.