Voluntary retirement exemption and reassessment limits: qualifying scheme compensation and later opinion alone cannot justify reopened tax orders.

A voluntary retirement scheme that operates for eligible employees, is intended to reduce workforce strength, and does not require replacement of retiring employees may satisfy section 10(10C) read with rule 2BA, making compensation eligible for exemption up to the prescribed limit. The text also notes that reassessment based only on a later departmental view, without fresh material, is unsustainable where the same scheme had already been accepted and prior appellate decisions in identical matters had attained finality. The stated ratio emphasises that a qualifying voluntary retirement scheme attracts the statutory exemption, and that reassessment cannot rest merely on a subsequent opinion or circular.

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Issues: (i) Whether the compensation paid under the Reserve Bank of India's Optional Early Retirement Scheme qualified for exemption up to Rs. 5 lakhs under section 10(10C) of the Income-tax Act, 1961 read with rule 2BA of the Income-tax Rules, 1962; (ii) Whether the reassessment proceedings and the impugned assessment orders could be sustained when they were based only on a subsequent departmental view and were contrary to prior appellate decisions in identical matters.

Issue (i): Whether the compensation paid under the Reserve Bank of India's Optional Early Retirement Scheme qualified for exemption up to Rs. 5 lakhs under section 10(10C) of the Income-tax Act, 1961 read with rule 2BA of the Income-tax Rules, 1962.

Analysis: The Scheme was treated as a voluntary retirement scheme notwithstanding the use of the word "optional", which was regarded as a close variant of "voluntary". The Scheme applied to eligible employees who had completed the requisite service and age conditions, was designed to reduce the overall strength of employees, and did not require vacancies caused by retirement to be filled up. On that basis, the Scheme was held to be in conformity with the statutory requirements for exemption under section 10(10C) and rule 2BA.

Conclusion: The compensation under the Scheme was held eligible for exemption up to Rs. 5 lakhs, in favour of the assessee.

Issue (ii): Whether the reassessment proceedings and the impugned assessment orders could be sustained when they were based only on a subsequent departmental view and were contrary to prior appellate decisions in identical matters.

Analysis: The reassessment was initiated without any fresh material, save for a later circular and opinion based on the same scheme already examined by the department. Prior intimation had allowed the exemption, and later proceedings were found to rest on an erroneous reappraisal rather than new information. The Court also treated the earlier appellate orders in identical matters as binding on the Assessing Officer and found the contrary treatment of similarly placed employees discriminatory and violative of equality.

Conclusion: The reassessment proceedings and the impugned orders were held unsustainable and were quashed, in favour of the assessee.

Final Conclusion: The writ petition succeeded, the impugned income-tax orders were set aside, and the petitioners were held entitled to the claimed exemption under the voluntary retirement scheme.

Ratio Decidendi: A voluntary retirement scheme satisfying the statutory conditions under section 10(10C) and rule 2BA is entitled to exemption up to the prescribed limit, and reassessment cannot be founded merely on a later opinion or circular when no fresh material exists and identical appellate decisions have already attained finality.

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