TaxTMI 
TaxTMI 
2025 (6) TMI 225
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder dt. 8.12.22 had Set-aside the Assessment Order & remit the matter to the file of the AO, with a direction to decide the issue afresh in the hue of the said additional evidence as per law. The Learned CIT(A) has erred in not considering the said letter & has not given any finding on the same hence it would be justified to remit the file to the AO with similar directions. 2. The Learned CIT(A) has erred on Facts & Law in holding & treating the amounts of Rs. 29,82,830 as Profits in lieu of Salary u/s 17(3)(i) & has erred in considering the said amounts as compensation & failed to appreciate that the said amounts were received de hors of any contract & entitlement & without any obligation on the Employer to pay. 3. The Learned CIT(A) has erred in understanding the ERS Document & failed to arrive at the correct interpretation & the underlying intentions of the Co. towards the appellant & the need for evolving the said scheme of retirement of all employees permanently. The Learned CIT(A) has erred in understanding the meaning of voluntarily retirement & dealt upon the same erringly with closure of the Co. & offering of ERS Scheme against ex-gratia. 4. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n his return of income offered the amount received from his employer, Colgate Palmolive Ltd. as his salary income under the provisions of section 17(3) of the Act as profits in lieu of salary and claimed relief under section 89 read with Rule 21A(1)(a) of the Income Tax Rules, 1962 (the "Rules") as the said amount pertained to the compensation received for termination of assessee's employment with Colgate Palmolive Ltd. During the course of assessment proceedings, in response to explanation sought by the Ld. Assessing Officer ("AO"), the assessee submitted that the said amount received from the Company is in the nature of capital receipt and the same is paid voluntarily and as compensation on premature termination of employment. The Ld. AO did not find the submissions of the assessee tenable and proceeded to complete the assessment vide order dated 17/12/2018 passed u/s 143(3) of the Act assessing the income to be the same as returned income of Rs. 29,82,830/- and allowing relief u/s 89 of Rs. 2,60,022/- as against the total claim of Rs. 7,87,795/- and thereby disallowing the relief of Rs. 5,27,773/- made by the assessee by observing in para 4.15 of the assessment order as under:- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Addl/ JCIT(A) did not find the submissions of the assessee as tenable and dismissed the assessee's appeal by observing as under:- "4.6 The facts of the case in the light of the submission made by the appellant at the time of assessment proceedings and the present appellate proceedings and the case laws relied upon were carefully considered. The short question to be answered is whether the compensation received by the appellant at the time of VRS or ERS, by whatever name called is a capital receipt, being exempt from tax, or profit of lieu of salary as per S.17(3)(i), being taxable? 4.7 The Hon'ble ITAT at Pune in the case of Mahadev Dhangekar Vs. ACIT (NFAC) 149 Taxmann.com 170, had dealt with the issue in the light of the imposition of S.17(3)(iii) to tax the lump sum received in the case of that assessee and held that the same is exempt from tax. Before proceeding to deal with the enforceability of the said decision, the extracts of the applicable provisions of law, the decision relied upon and the confirmation letter provided by the erstwhile employer of the appellant needs to be brought on record and the same is accomplished hereunder. Provision of S.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to 17(3)(iii) in the case relied upon. In the case of Mahadev Dhangekar, the gratuitous payment was made not at the time of retirement, but subsequently, when such compensation has no connection with that of his employment and its termination. In order to comprehend this distinctive feature in an appreciable manner, the brief facts of the case incorporated in the order of the Hon'ble ITAT is depicted below: The brief facts in this case are that the assessee has taken voluntary retirement from Racold Thermo Private Limited Pune during the year under consideration. Thereafter the assessee has started trading business of Industrial consumable supply in the name of M/s. Laxmi Enterprises. The assessee received Rs. 47,21,154/- from the company as Ex-Gratia and from this amount claimed Rs. 5,00,000/- u/s 10(100) VRS compensation/Termination of service and balance remaining amount of Rs. 42,21, 154 from Ex-Gratia taken as capital receipt. 4.9 Whereas in the case of the appellant, the severance package was paid at the time of his retirement and hence it has to be necessarily as a profit in lieu of salary as per S.17(3)(i) of the Act. In the case of Mahadev Dhangekar, that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee relates thereto. 6. At the outset of the hearing, referring to the legal compilation filed on behalf of the assessee, the Ld. AR submitted that the impugned issue stands covered in favour of the assessee by catena of decision(s) of the Coordinate Bench of the Pune Tribunal wherein under the similar set of facts, the Tribunal has taken a view that the compensation received by the assessee under the ERS/VRS scheme from his employer at the time of VRS is capital in nature which is exempt from tax and not profit in lieu of salary taxable under the provisions of section 17(3)(i)/(iii) of the Act. In support thereof, he cited the recent decision of the Pune Tribunal in the case of Shriant Anantrao Zori vs. ITO in ITA No. 798/PUN/2024 dated 28/01/2025, pronounced by this Bench. 7. The Ld. DR fairly has not raised any objection to the above submission of the Ld. AR. 8. We have heard Ld. Representatives of the parties and perused the material on record and paper book(s) filed on behalf of the assessee. The facts of the case are not in dispute. The Ld. AO has not accepted the claim of the assessee that the impugned amount is in the nature of capital receipts received by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hich is placed at pages 73 to 83 of the paper book and drew the attention of the Bench to the following clauses: "I. PREAMBLE (i) Pfizer Healthcare India Private Limited (the "Company") has decided to cease manufacturing in its plant located at Plot No L8 (part), L-9 & Gut Nos 36, 37, 38, MIDC, Waluj, Aurangabad - 431136 ("Plant") with the intention to exit the Plant due to significant long term loss of product demand. (ii) The above decision is bona fide and has been made after an extensive and careful evaluation. The employees of the Plant have been informed of this decision and reasons thereof. (iii) The Company is desirous of providing a beneficial settlement to all permanent employees of the Plant. Towards this objective, the Company has taken a decision to offer a financial scheme to its permanent employees at the Plant, on the terms and conditions set out below. The 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 15. So far as sub-clause (ii) is concerned, the Ld. Counsel for the assessee referring to the various decisions submitted that this clause is also not applicable. He submitted that the amount received by the assessee is not a compensation but on account of loss of pay. Referring to the decision of the Hon'ble High Court of Calcutta in the case of CIT vs. Ajit Kumar Bose (1987) 165 ITR 90 (Cal), he submitted that the Hon'ble High Court has held that where the conditions of service clearly stipulated that the assessee's services could be terminated at any time on giving three months notice and there was no obligation on the employer to pay anything to the assessee in connection with the termination, payment made ex- gratia, therefore, totally voluntary and not compensation which implies some sort of obligation to pay and cannot be taxed as profits in lieu of salary within meaning of section 17(3) of the Act. 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 assig....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ABRPK4860E 9.3.2024 6 Nandkishor Khairnar BFEPK6767A 9.3.2024 7 Narendrakumar P Desale BALPD6728C 4.3.2024 8 Ramesh S. Sonavne CEAPS7400G 21.2.2024 9 Sanjay N. Karale AAFPK0335H 16.2.2024 10 Ravindra W. Aherwal ABDPA1341G 13.2.2024 11 AG Deshmane AVLPD8364J 10.11.2023 21. He accordingly submitted that the CIT(A) / NFAC is not justified in sustaining the addition of Rs. 57,12,673/-. 22. The Ld. DR on the other hand heavily relied on the order of CIT(A) / NFAC. 23. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed by both the sides. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case rejected the claim of relief u/s 89 of the Act of Rs. 18,74,899/- 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 ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....)." As the various courts have allowed the claim that the amount received at the time of cessation of his employment due to closure of the manufacturing unit as capital receipt during assessment proceedings in the cases referred by the assessee, the AO's has duly accepted the above claims of the respective assessee, which are very similar cases as that of the assessee's instant case. Hence, the reopened assessment proceedings in the case of the assessee, is hereby proposed to be completed by accepting the income returned by the assessee in response to 148." 25. In the remaining cases also, the respective AOs have treated such compensation as capital in nature. We, therefore, find merit in the arguments of the Ld. Counsel for the assessee that when the concerned AOs after reopening of the assessment have treated such compensation as capital in nature 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 Assessin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd the Delhi Bench of the Tribunal in the case of ITO vs. Avirook Sen (supra) at para 12 of the order has observed as under: "12. As the payment of ex-gratia compensation was voluntary in nature without there being any obligation on the part of employer to pay further amount to assessee in terms of any service rule. it would not amount to compensation in terms of section 17(3)(i) of the Act. The impugned addition was rightly deleted by the Ld. CIT(A). The aforesaid point is accordingly determined against the revenue department. The appeal is accordingly not sustainable as we don't find any error of law or fact in the impugned order passed by Ld. CIT(A). The department appeal is liable to be dismissed." 28. The various other decisions relied on by the Ld. Counsel for the assessee placed in the paper book support his case to the proposition that the payment of ex-gratia compensation received by the assessee was voluntary in nature without there being any obligation on the part of the employer to pay further amounts to the assessee in terms of any service rule and therefore, would not amount to compensation in terms of section 17(3) of the Act. We, therefore, set....