2025 (10) TMI 33 - AT - Income Tax

Assessee entitled to exemption under s.10(10A) for lump-sum pension commutation; AO directed to rectify under s.154

ITAT, Chandigarh allowed the appeal, holding the assessee entitled to exemption u/s 10(10A) for lump-sum payment in commutation of pension under the ... Deduction u/s 10(10A) denied - Rectification u/s 154 - assessee was entitled to pension as one of the retirement benefits which was applicable to all management employees who retired on completion of 10 years’ of company’s service or retired from service of the company after completing 20 years of continuous service HELD THAT:- A perusal of Section 10(10A) would reveal that it nowhere provides that benefit would only accrue to the assessee on superannuation/retirement. If assessee has received lumpsum payment in lieu of pensionary benefit under the Scheme formulated by the employer, then that would fall u/s 10(10A)(ii) i.e. payment in commutation of pension received under any scheme of any other employer to the extent it does not exceed. So, there was no other restriction. Thus, assessee is entitled for exemption u/s 10(10A) of the Income Tax Act. Whether it is an apparent error which can be rectified u/s 154? -The power of rectification u/s 154 of the Income Tax Act can be exercised only when the mistake which is sought to be rectified is an obvious and patent mistake which is apparent from the record and not a mistake which requires to be established by arguments and a long- drawn process of reasoning on points on which there may conceivably be two opinions. Assessee has placed on record large number of decisions wherein it has been propounded that if assessee is entitled for a benefit admissible in law, then on account of procedural requirement, such benefit should not be denied to the assessee. AO was of the view that this payment is not retirement benefits but a payment received on account of extinguishment of their employment on other benefits. He has also observed that assessee has joined the subsequent group and there is no termination of employee-employer relationship. It is pertinent to observe that from one Management i.e. Ranbaxy Laboratories, assessee's services came to an end. He was retired and in lieu of his pensionary rights, he got this amount. If some retired employee avails the other employment, then how it could prohibit him to claim the pension. We fail to appreciate this logic of the AO. Therefore, we are of the view that assessee is entitled for exemption u/s 10(10A). This was an apparent error in the order of the AO when this benefit was denied to the assessee and application u/s 154 ought to have been allowed by him after following the order of the ITAT passed in similarly situated employees’ cases. Accordingly, we allow the appeal of the assessee and direct the AO to grant benefit of Section 10(10A) of the Act i.e. exemption. ISSUES PRESENTED AND CONSIDERED 1. Whether a lump-sum payment received in lieu of pensionary benefit under an employer's pension scheme qualifies as 'payment in commutation of pension' and is therefore exempt under section 10(10A) of the Income Tax Act. 2. Whether the denial of section 10(10A) relief by the Assessing Officer amounted to an apparent and patent mistake on the record, rectifiable under section 154 of the Income Tax Act. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to exemption under section 10(10A) for lump-sum received in lieu of pension Legal framework: Section 10(10A) exempts 'any payment in commutation of pension received under any scheme of any other employer,' subject to specified quantitative limits (e.g., commuted value of one-third where gratuity also received, or one-half in other cases) and actuarial determinations. The statutory provision makes commutation of pension the qualifying characteristic for exemption but does not expressly require that commutation coincide temporally with superannuation/retirement. Precedent treatment: The Tribunal relied on prior coordinate-Bench decisions that allowed exemption for similarly situated retired employees who received lump-sum payments in lieu of pension under employer policies; those decisions interpreted the statutory requirement as satisfied by the nature of the payment (commutation of pension) rather than by timing tied exclusively to retirement. Interpretation and reasoning: The Court examined the employer's pension policies and facts showing that the lump-sum payment represented payment in lieu of pensionary entitlement upon cessation of service from that employer. The Court emphasized the plain statutory text: the critical element is that the payment is a commutation of pension under a scheme, not that it must be paid strictly at the moment of superannuation. The Assessing Officer's imposition of a temporal requirement (that commutation must occur only on retirement or superannuation) was held to be a judicial creation lacking legislative basis. The AO's further rationale - that post-retirement re-employment with another group negated pension entitlement - was rejected as logically unsound because termination of service with the pension-providing employer had occurred and the lump sum was in lieu of that employer's pension obligations. Ratio vs. Obiter: Ratio - A lump-sum payment made in lieu of pensionary benefits under an employer's pension scheme constitutes 'payment in commutation of pension' within section 10(10A) if it represents commutation of pensionary rights, irrespective of formal timing constraints not provided in the statute. Obiter - Observations criticizing the AO's factual characterisation of the payment as 'extinguishment of employment on other benefits' and commentary on re-employment do not add binding legal propositions beyond the ratio. Conclusion: The assessee's lump-sum payment qualified as commutation of pension under section 10(10A) and the exemption (to the extent claimed and within statutory limits) was allowable. Issue 2 - Whether the denial was an apparent error rectifiable under section 154 Legal framework: Section 154 permits rectification of 'mistake apparent from the record.' The power is confined to obvious, patent errors and does not extend to issues requiring contested factual or legal deliberation where reasonable differences of opinion exist. The scope of 'record' includes material forming part of assessment proceedings and is not limited to the return. Precedent treatment: The Court referred to authoritative decisions and administrative guidance recognizing that where entitlement to a relief is apparent from the assessment record, the Assessing Officer may rectify an omission under section 154 even if the assessee failed to claim it originally, and that the AO is expected to point out or grant relief apparent on the record. Coordinate authorities and circular guidance support the proposition that the AO should inform the assessee of entitlements apparent from the record. Interpretation and reasoning: The Tribunal found that the denial of section 10(10A) relief was an apparent and patent mistake because the relevant facts and the employer's pension scheme showing commutation were on the assessment record. The failure to allow exemption was not shown to involve complex disputed facts or a debatable point of law requiring extended argument; instead, it stemmed from an erroneous interpretation by the AO (imposing a non-statutory temporal restriction) and an incorrect characterization of the payment. The Court also observed that follow-on employment does not negate the fact of retirement from the pension-providing employer and the corresponding commutation. Therefore, rectification under section 154 was appropriate. Ratio vs. Obiter: Ratio - Where entitlement to a statutory relief (here section 10(10A)) is manifest from the assessment record because the payment plainly constitutes commutation under an employer scheme, denial of that relief is a mistake apparent from the record and amenable to rectification under section 154. Obiter - Broader policy comments regarding the AO's duty to advise taxpayers and the applicability of long-standing circular guidance are persuasive but ancillary to the principal holding. Conclusion: The AO's denial of the exemption amounted to an apparent error on the record and should have been rectified under section 154; the Tribunal directed grant of the section 10(10A) exemption in the specified amount. Cross-references and ancillary points 1. The legal conclusions on both issues are interdependent: entitlement to exemption under section 10(10A) (Issue 1) establishes the substantive right, and the manifest nature of that entitlement on the assessment record determines rectifiability under section 154 (Issue 2). 2. The Tribunal rejected reliance on procedural non-claim or subsequent employment to deny substantive pension commutation relief when the assessment record and employer scheme demonstrate that the lump-sum was paid in lieu of pension. 3. Direction: The Assessing Officer was directed to grant the exemption under section 10(10A) in the claimed amount after rectifying the assessment under section 154 consistent with the Tribunal's findings.