TaxTMI 
TaxTMI 
2025 (1) TMI 1537
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....und of Capital Receipts. 2. The Learned CIT (A) has erred in confirming the AO's ascertaining correct perspective of Form 10E, Form 16 & has thus erred in not granting relief u/s 89 and has erred in giving relief u/r 21A(1) (c) instead of u/r 21A(1)(a). 3. The Learned CIT (A) has erred in confirming the AO's failure to make any enquiries related to non-reliability of Form 10E, employer not reporting relief u/s 89 in Form 16 & the same being taxable u/s 17(3)(i) & the understanding of advance salary, thus the AO has failed & erred in defying the established principle of natural justice, reasonable opportunity & has thus completed a biased & unlawful assessment. 4. The Learned CIT (A) has erred in confirming AO's non consideration and understanding the Financial Scheme Document and failed to arrive at the correct interpretation and the underlying intentions of the Co. towards the appellant and the need for evolving the said scheme of pre-mature retirement of all employees permanently. 5. The Learned CIT(/A) has erred in confirming the AO'% non acceptance of the Appellant's stand of the said amount received, being (Capital Receip....
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....idual employed with Pfizer Healthcare India Private Limited. The assessee in his return of income showed salary income of Rs. 42,57,146/-, claimed loss under the head "Income from house property" of Rs. 1,44,045/- and income from other sources of Rs. 22,420/-. The assessee claimed deduction of Rs. 2,05,753/- under various sections of Chapter-VIA and also claimed tax relief of Rs. 6,57,914/- u/s 89(1) of the Act. During the course of assessment proceedings, the assessee submitted that the management of Pfizer Healthcare India Private Limited, MIDC, Waluj, Aurangabad has formulated a scheme for all permanent employees in the company and under the preamble of the said scheme, the company has decided to cease manufacturing in its plant located at Plot No. L-8 (Part), L-9 and Gut No. 36, 37, 38 MIDC, Waluj, Aurangabad-431136 ("Plant") with the intention to exist the plant due to significant long term loss of product demand. 3.2 The assessee availed the said scheme in the relevant AY 2020-21. On account of loss of income/service, the company had given capital receipts/payments to the employees who were affected, depending on the balance service left ....
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....d, the assessee carried the matter before the Ld. CIT(A)/NFAC. The assessee filed detailed submissions which are contained in pages 16 to 38 of the appellate order. In his submissions before the Ld. CIT(A)/NFAC, the assessee, inter alia submitted as under : *Brief Facts: § The Appellant was employee of Pfizer Healthcare India Pvt. Ltd. at Aurangabad at the time of Closure of the Co. he was initially appointed by Orchid Chemicals & Pharmaceuticals Ltd. vide letter of appointment dt. 14.3.13, Orchid was taken over by Hospira Healthcare India Ltd which was further changed to & became Pfizer Healthcare India Pvt. Ltd. & the retirement scheme has been given by Pfizer. § Pfizer intended to exit the plant at Aurangabad due to significant long-term loss of product demand, accordingly, informed its employees. Pfizer desired to provide a Bonafide beneficial settlement to all permanent employees known as Financial Scheme for Employees of Aurangabad 2019, referred to as "Scheme" dt. 9.1.19. The scheme was purely voluntary. § Pfizer paid the Appellant dues on account of Salary & other regular benefits & additionally paid Ex-Gratia (Severance pa....
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....t is essential to understand the aspect of the legal obligation on part of Pfizer to pay the said scheme amounts & was the appellant legally entitled to claim & receive the same. Hence it is important to analyse the letter of appointment & financial scheme 2019 documents, which are being explained & deliberated upon as under: - v Analysis of letter of Appointment. o Initially the Appellant was appointed by Orchid Chemicals & Pharmaceuticals Ltd. by Letter of Appointment dt. 14.3.13, further the said Co. was acquired by Hospira Healthcare India Ltd. in continuation of his employment with Orchid by letter dt. 3.7.14 thereafter the same Hospira Healthcare India Pvt. Ltd. became Pfizer Healthcare India Pvt. Ltd. hence the Appellant request that it is necessary to analyse the terms of Appointment as under. Kindly refer the letter of Appointment dt. 14.3.13 at pg. 15-17 of paper book o Letter of Appointment dt. 3.7.14 Primary Appointment letter of Orchid which continued with Hospira & thereafter with Pfizer: - § Clause 01.- Emoluments states the details of Salary & allowances & Annual entitlements to be given to the employee. § Claus....
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.... voluntarily offered by Pfizer with favorable & legitimate terms & conditions. The employees were given details of amounts payable to them in Annexure-II. The employees were required to make an application as per Annexure-1 & then sign form of receipt & Full & Final Settlement Computation Sheet, In Annexure-III. The analysis of scheme documents is being explained as under: - Kindly refer to employment & Financial Scheme details in at pg. 4-14 of paper book Kindly refer full & final settlement Computation sheet at pg. 2-3 of paper book o 1. PREAMBLE - § (i) - Pfizer decided to cease manufacturing at Aurangabad Plant with the intention to exit due to significant long-term loss of product demand. § (ii) - Pfizer's decision was Bonafide & had been made after an extensive & careful evaluation & accordingly informed to all the employees. § (iii) - Pfizer desired to give stated a beneficial settlement towards their said objective & the said scheme was stated to purely voluntary from the Co. & optional for the employees. § (iv) - Employees opting for the scheme would be ending their employment on 30.4.19....
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....nvitation to offer the scheme, Pfizer having absolute discretion to either accept or decline. § (iv) - The scheme amounts to each employee shall be full & final settlement of all claims & no further amounts will be claimed & no demands will be made. § (vi) The scheme is independent & without prejudice to the rights of Pfizer to dispense with the services of the employee either under the contract of employment or under the standing orders or laws applicable. § (vii) The scheme will be final & binding upon all the employees who opt to voluntarily retire from their employment with Pfizer under the scheme. § (viii) Employees who opt for voluntarily retirement under the scheme will not be entitled to any compensation under the provisions of Industrial Dispute Act because their cessation constitute resignation & does not constitute retrenchment or termination of employment. § (ix) - Employees who have opted for the scheme were not entitled to raise any disputes whatsoever about their separation from the services of the Co. separation as arise upon their voluntary resignation. § (x) The scheme was not nego....
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....& has neither rebutted the claim of the appellant for claiming the said amounts as capital receipts by brining any cogent reasons, the AO has failed even to record the said claim in the Assessment Order the AO has failed to provide any show cause & assign any reasons for not holding the receipts as capital receipts. 16. The appellant would like to submit as to "Why the said Receipts are required to be considered as Capital Receipts" because the appellant had received the amount of compensation only due to indirect compulsory early retirement and if the Co. would have continued & not decided to exit the plant, appellant would have retired in the year 2027, That means on an average the appellant was having balance service of 8 years & 2 Months. Further the appellant had received the said amounts being ex-gratia (severance pay) compensation on premature cessation of his services under a scheme which was purely voluntary in nature as the same was neither in terms of employment nor the service rules of the company provided for making exgratia (severance pay) payment, these payments are thus Capital Receipts. Moreover, when the only source of Income of the appellant itself is we....
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....d." Copy of Judgement is at pg. 4-7 of Legal Compilation. Similarly as per the facts of the above cited case the Appellant was also placed on identical Grounds as Pfizer wanted to exit the plant & voluntarily offered the scheme to all employees for retiring willingly & paid certain amounts as ExGratia with no link of any kind to the service contract & without any obligation hence the above ruling of the Jurisdictional ITAT is squarely applicable & binding in nature & is most humbly requested to be applied. Ajay Ghose vs DCIT Mumbai ITAT wherein it has been held "The assessee has received the intimation u/s 143(1)of the Act on 04.05.2018 by email, where the A.O.(CPC) has assessed the total income of Rs. 1,16,46,980/-and raised a demand of Rs. 36,71,880/- During the financial year under consideration, the assessee has received an amount of Rs. 74,28,585/- towards severance pay due to loss of employment from the employer M/s. AREVA India Pvt Ltd because of shutting down the business operations in India. The assessee was working with the AREVA group from the year 2006. On applying the ratio of the decision to the present case, the fact remains ....
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.... payment is made ex-gratia or voluntarily by an employer out of his own sweet will & not conditioned by any legal beautify or legal obligation, whether on sympathetic reasons or otherwise, such payments is not to be treated as "profits in lieu of salary" under clause (i)". - Delhi ITAT has relied upon Arjunbhai R Naik (Guj) & Deepak Verma (Del). Compensation received was not liable to tax u/s 17(3) considering two important judgments of Gujarat & Delhi High Court. Copy of Judgement is at pg. 29-42 of Legal Compilation. 18. Sir, the appellant would like to explain the view taken by the Jurisdictional High Court of Bombay & other High Courts on the aspect of Capital Receipts which are as under: W. A. Guff vs. CIT - Bombay High Court - 31 ITR 826 (1957) - wherein it has in been held "In this case it is not disputed that the cessation of the assessee's 's employment was compulsory. He did not wish to leave the services of the company; he was compelled to leave it due to the intention of his employer to terminate his services. A payment was made by employer to the employee which was a voluntary payment, and which was paid to him, not for past services ....
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.... in the employment of the company up to any particular age. Under the conditions of service, his services were liable to be terminated on giving three months' notice without assigning any reason. Under the circumstances, it cannot be said that the assessee was entitled to remain in service for any period long after the requisite notice has been given or that the employer was under any obligation to pay anything to the assessee in connection with the termination of his employment other than the salary for the period of notice. Under the circumstances, in its true nature and character, the payment was ex gratia, that is to say, totally voluntary; it was not compensation which implies some sort of an obligation to pay". (see if capital receipts clause is added only instead of clause of compensation) Payments to employee who could not have continued in services beyond a period are ex- gratia, totally voluntarily & it is not the compensation which will imply any obligation to pay as payments are made not under any obligation are hence voluntarily. In this view, it cannot be said that the amount in question was profits in lieu of salary within the meaning of sub-cl. (3) of s. 17 of t....
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....ot paid for any past services cannot be construed as an income on a/c of profits in lieu of salary. Copy of Judgement is at pg. 59-61 of Legal Compilation. CIT vs. Deepak Verma - Delhi High Court -339 ITR 475 (2010) wherein it has been held "Merely because payment was to be received on resignation would not change the character of the payment being voluntary in nature granted by HTCGU suo motu in its own discretion without any vested right of the assessee to claim the same under the employment contract. The Courts in the following cases have held that voluntary payments made by the employer to the employee without any right vested in the employee enforceable at law. is in the nature of capital receipt not exigible to tax as 'salary.". Delhi High Court has relied upon Jamini Mohan Kar (Cal) & CIT vs. Ajit Kumar Bose (Cal). - where employee does not have any right vested in him, then payments received are in nature of Capital receipts. Copy of Judgement is at pg. 61-68 of Legal Compilation. Khanna & Annadhanam vs. CIT - Delhi High Court 258 CTR 72 (2013)- wherein it has been held "Held, where by the cancellation of an agency the trading structu....
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....ny obligation on part of employer, would not amount to compensation in terms of section 17(3)(i) hence amount received by Assessee was not income liable to tax u/s 17(3). - Gujarat High Court has relied upon Deepak Verma (Del), Jamini Mohan Kar (Cai) & CIT vs. Ajit Kumar Bose (Cal). - Amount paid in terms of settlement could not change the character of the payment, inasmuch as, the same being voluntary & without obligation & would not amount to compensation in terms of sec. 17(3). Copy of Judgement is at pg. 81-89 of Legal Compilation. CIT vs. Sharda Sinha - Delhi High Court-94 CCH 168 (2015) - wherein it has been held "Termination of contract had fatally injured the appellant's only source of income for the last 20 years." The mere fact that the Assessee was free to earn through other sources would not make a difference to this position. Supreme Court in Kettlewell Bullen and Company Ltd. (supra) and Oberoi Hotel Pvt. Ltd. v. CIT [1999] 236 ITR 903 (SC), this court held that if the receipt represents compensation for the loss of a source of income, it would be capital and it matters little that the assessee continues to be in receipt of income from its other ....
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....erein it has been held "The amount was received because the assessee had given up its right to purchase and or to operate the property. Further, it is loss of source of income to the assessee and that right is determined for consideration. Obviously, therefore, it is a capital receipt and not a revenue receipt". Consideration paid towards loss of source of income is Capital Receipts. Copy of Judgement is at pg. 114-119 of Legal Compilation. 21. Sir, the main thrust of the Supreme Court, is on loss of source of income, it has held on to the core issue that, once any compensation amount is received which in turn has affected the assessee's source of income, is required to be considered as Capital Receipts. CIT vs. K. K. Roy - Supreme Court-84 ITR 701 (1971)-wherein it has been held ".... The High Court answered that question in favour of the assessee. Thereafter, this appeal has been SHRIKANT ZORI CIT(A)AY 20-21 DSTA 19 brought by the CIT after obtaining a certificate from the High Court. - 3. In our opinion, this appeal is a wholly frivolous one and the CIT was not justified in wasting public funds in filing such appeals. The point in issue here is cov....
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....ell-being, it was one-off payments not recurring in nature & when the payments are made as compensation for Capital loss of permanent source of -Income then the said amounts are obviously Capital Receipts & as supported by the declaration made by the Co. that the same does not constitute Retrenchment or Termination of employment by the Co. as such the scheme payments are not made in connection of the termination of the job of the appellant, hence do not SHRIKANT ZORI - CIT(A)-AY 20-21-DSTA 20 correspond to being paid as compensation as envisaged under the provision of sec. 17(3)(1) hence the said amounts are not profits in lieu of Salary because as per sec. 17(3)(1) & as per explanation 3 no such amount is Included under the definition of Salary as received herein by the Appellant. This has been upheld by various High Courts The Supreme Court." 4.2 The Ld. CIT(A)/NFAC mentioned ground No. 4 on the impugned issue for adjudication. He has not decided the same as can be seen from the relevant extract from the order of the Ld. CIT (A) reproduced above. 5. Aggrieved with such order of Ld. CIT(A)/NFAC, the assessee is in appeal before the Tribunal and all the grounds of appeal....
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....Scheme (as hereinafter defined) is purely voluntary and it is for each such employee to decide whether or not to opt for the same. (iv) In the event the employees opt to retire voluntarily from their employment with the Company in accordance with the Scheme, their last day of employment with the Company will be February 8, 2019, (unless mutually agreed otherwise in writing) and they will be paid an attractive financial package on the terms and conditions set out below. Those employees who do not opt for the Scheme (as hereinafter defined), will be paid only statutory or contractual dues payable on cessation of employment, provided they are eligible for the same." 13. Referring to other terms and conditions as per clause (11), the Ld. Counsel for the assessee drew the attention of the Bench to the sub-clause (viii) of the same, which reads as under: "(viii) All Employees who opt for voluntary retirement under the Scheme will not be entitled to any compensation or notice pay under the provisions of the Industrial Dispute Act, 1947 as their cessation from the employment constitutes "resignation" and does not constitute "retrenchment" or "termination of emplo....
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.... Referring to the copy of letter of probation dated 20.07.2020 he drew the attention of the Bench to column 14 of the same which reads as under: "14. Notice Period : During the period of probation, your employment can be terminated without any notice or assigning any reason thereof on either side. On confirmation your employment can be terminated by one month's notice in writing or pay in lieu thereof on either side." 16. He accordingly submitted that the decision of the Hon'ble High Court of Calcutta cited (supra) is squarely applicable to the assessee. 17. The Ld. Counsel for the assessee referring to the decision of the Pune Bench of the Tribunal in the case of Mahadev Vasant Dhangekar vs. ACIT (2023) 149 taxmann.com 170 (Pune-Trib.) submitted that the Tribunal in the said decision has held that where the assessee had received Rs. 47.21 lacs from the erstwhile company as ex-gratia and letter has been issued by the employer which clearly stated that payment of amount has been made voluntarily to the assessee and was not compensation without establishing letter as non-genuine or without examining sanctity of payment made simply invoking provisions o....
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....899/- on income of Rs. 57,12,674/- treating the same as income u/s 17(3) of the Act. We find the CIT (A) / NFAC upheld the action of the Assessing Officer, reasons of which are already reproduced in the preceding paragraphs. The CIT (A) / NFAC also rejected the alternate claim of the assessee that such amount being a capital receipt cannot be brought to tax. It is the submission of the Ld. Counsel for the assessee that in case of various other employees who have received similar compensation, the same has been accepted as capital receipt by the respective AOs in re-assessment proceedings and no addition has been made. Further, various Co-ordinate Benches of the Tribunal in similarly placed employees have also treated such compensation received on termination of service as capital in nature and not falling u/s 17(3) of the Act. 24. We find the Assessing Officer in the case of Sharad D. Magar, who also resigned voluntarily from service of Pfizer Healthcare India Pvt. Ltd., Aurangabad has accepted the compensation received at Rs. 30,49,176/- as capital in nature by observing as under: "Brief facts of the case: The assessee, Shri Sharad Daulatrao Ma....
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....and the Revenue has not challenged the same and which has attained finality since no 263 proceedings have been initiated, therefore, the assessee's case being identical to the facts of the other employees of Pfizer Healthcare India Pvt. Ltd., the CIT (A) / NFAC is not justified in sustaining the addition made by the Assessing Officer. 26. We further find the Hon'ble Calcutta High Court in the case of CIT vs. Ajit Kumar Bose (supra) has observed as under: "4. The amount in question was received by the assessee from his employer. It was received by him in connection with the termination of his service. But the question still remains whether it was compensation. Since it was received by the assessee in connection with the termination of his employment, the term "compensation" would be referable to that event. In other words, it is to be seen whether the amount was paid as compensation for the termination or in lieu of the termination of the employment. 5. The letter issued by the employer dated July 3, 1969, stated that the amount was being paid ex gratia. There is nothing to indicate that the assessee was entitled to continue in the employment of the compan....