TaxTMI 
TaxTMI 
2005 (12) TMI 64
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....e income-tax on the taxable income for the year 2000-01 after excluding rupees five lakhs under section 10(10C)(viii) of the Income-tax Act. After excluding that amount the bank arrived at the tax payable by each of the employees taking into account the allowances and reliefs and such other deductions under Chapter VI-A to Chapter X. The employees who took voluntary retirement therefore were found entitled to relief under section 89(1) of the Income-tax Act in respect of the payment under the provisions of clause (3) of section 17. The employees later filed their return for the assessment year 2001-02 to the concerned office. The Assessing Officer however based on a letter F.No. 174/5/2001-ITA.I, dated April 23, 2001, issued by the Central Board of Direct Taxes to the Chief Commissioner of Income-tax, Bangalore, issued notices to all the employees and initiated proceedings against the retired employees of the several branches of the bank under section 201(1A) of the Act stating that the employees are not entitled to relief in excess of Rs. 5 lakhs granted under section 10(10C)(viii) and hence no relief could be granted under section 89(1) read with rule 21A/Appendix II in respec....
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....alary is received as arrears or in advance for a period of more than twelve months in a financial year or the amount received is a profit in lieu of salary under section 17(3). Counsel further submitted that relief under section 89(1) is admissible only when compensation is received in connection with the employment and in the case of voluntary retirement there is no termination of employment. The question that falls for consideration in these cases, as we have already indicated, is whether ex gratia compensation received by the petitioners on their voluntary retirement as per the voluntary retirement scheme is entitled to relief under section 89(1) of the Income-tax Act read with section 17(3)(i) of the Act. The Madras High Court in CIT v. G.V. Venugopal [2005] 273 ITR 307 had occasion to consider whether the employees who had availed of the voluntary retirement scheme is entitled to exemption under section 10(10C) as well as relief under section 89(1) in respect of the payment under the voluntary retirement scheme. The assessing authority in that case placed reliance on the clarification issued by the Central Board of Direct Taxes addressed to the Chief Commissioner of Income-....
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.... with regard to the compensation received by an employee in connection with the termination of the employment and not in a case where compensation is received by way of voluntary retirement. Counsel submitted that the Legislature is well aware of the distinction between the expressions "voluntary retirement", "termination of employment" and "retirement" when it used the expression "voluntary retirement" under section 10(10C)(viii) of the Act. We may for easy reference extract the abovementioned provision. Section 10(10C)(viii) which stood at the relevant assessment year reads as follows: "10. Incomes not included in total income.- In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- ... (10C) any amount received or receivable by an employee of- (i) a public sector company; or ... (viii) such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf, on his voluntary retirement or termination of his service in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred....
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....cated by way of bonus on such policy: Explanation. - For the purposes of this sub-clause, the expression 'keyman insurance policy' shall have the meaning assigned to it in clause (10D) of section 10; (iii) any amount due to or received, whether in lump sum or otherwise, by any assessee from any person- (A) before his joining any employment with that person; or (B) after cessation of his employment with that person." Sub-clause (iii) of section 17(3) was inserted by the Finance Act, 2001 with effect from April 1, 2002. The Revenue has already raised a contention that since the term 14 "voluntary retirement" has not been used by the Legislature in section 89(1) read with section 17(3)(i), the benefit available under section 89(1) read with section 17(3) and rule 21A of the Income-tax Rules is available only to those employees whose services have been terminated. Further it was pointed out that the words "termination of employment" have been used in section 17(3) of the Act and therefore the amount received by the employee from the employer at or in connection with the termination of employment whether due to disciplinary proceedings or otherwise, would alone be enti....
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....ill not be fully achieved and it would amount to restricting the scope of the beneficial clause. We are in full agreement with the reasoning of the Madras High Court in J. Visalakshi's case [1994] 206 ITR 531. The Madras High Court in CIT v. M. Raman [2000] 245 ITR 856, held that the Tribunal was right in holding that the amount received by the employee at the time of voluntary retirement of service would be regarded as salary and the relief under section 89 of the Act would be admissible in respect of the amount received by the assessee from his employer at the time of voluntary retirement. Similar is the view taken in CIT v. G.V. Venugopal [2005] 273 ITR 307 (Mad). Section 89(1) is a beneficial provision which has been placed under Chapter VIII dealing with rebates and reliefs and, therefore, has to be interpreted in tune with the object and purpose for which those provisions have been incorporated. If section 89(1) read with section 17(3)(i) of the Act is intended to give benefit to employees on the amount of compensation received from the employer on termination of service, we fail to see why compensation received by an employee on voluntary retirement be not given the same ....