2025 (11) TMI 1409

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....ssee has raised the following grounds of appeal: "I. The CIT(A) erred in law and on facts in upholding the addition of Rs.26,97,912/- towards severance pay, despite detailed submissions and documentary evidence establishing that the Income were capital receipts. II. The authorities below failed to appreciate that the Severance pay were authentic 'compensation' III. The CIT(A) erred in confirming the addition of Rs.26,97,912/- as without applying the correct interpretation of facts and information produced before them. The disallowance of severance pay solely on the ground of company deducting tax on payment and not verification of evidence, which is unjustified, especially when such an evidences and supporting pro....

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.... further enquiry under section 142(1) of the Act, the Ld. AO found that the assessee had received Rs. 26,97,912/- towards Severance Compensation and claimed the entire severance compensation as exempt income. The Ld. AO, relying on section 17(3) of the Act, held that severance compensation received after cessation of employment is fully taxable as "profits in lieu of salary", unless specifically exempted under section 10 of the Act. Accordingly, the Ld. AO made an addition of Rs. 26,97,912/- in the hands of the assessee and assessed the total income of the assessee at Rs. 52,08,672/- vide order dated 11.01.2021 passed under section 143(3) r.w.s 143(3A) and 143(3) of the Act. 4. Aggrieved with the order of the Ld. AO, the assessee filed a....

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....the documents placed on record along with the judicial precedents relied upon. The issue for consideration is whether the severance compensation of Rs. 26,97,912/- received by the assessee is taxable or exempt under the Act. In this regard, it is crucial to go through the provision contained under section 17(3) of the Act, which is to the following effect: "Salary", "perquisite" and "profits in lieu of salary" defined. 17. For the purposes of sections 15 and 16 and of this section - (1) "Salary" includes ........................... (2) ...................... "(3) "profits in lieu of salary" includes- (i) the amount of any compensation due to or received by an assessee from his e....

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.... the Coordinate Bench of the Tribunal in the cases of Sudhakar Ratan Shanker (Supra) and Samik Pankajbhai Parikh (Supra) relied on by the assessee. In both these decisions, the Tribunal proceeded on the basis of the judgment of the Hon'ble Gujarat High Court in Arunbhai R. Naik vs. ITO (64 taxmann.com 216) dated 12.10.2015, wherein severance compensation was held to be a capital receipt on the ground that the same was a voluntary payment not falling within the ambit of section 17(3)(i) of the Act. We have perused the judgment of the Hon'ble Gujarat High Court. It is evident that the said judgment pertained to Assessment Year 1994-95, when the statutory position was materially different. The Finance Act, 2001 inserted clause (iii) to section....

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.... seen from the cessation of employment letter that the payment made by the employer was not voluntary and that the payment was made in lieu of services rendered by the assessee. Also assessee was obligated as the letter states that "The details of the cessation of your services with the company are to be kept confidential". Therefore, it clearly falls within the ambit of salary income. Further, in view of these facts, the employer itself has gone ahead and deducted TDS on the said amount, and taken it as part of salary in Form 16. 9. On perusal of the above, we find that the Ld. CIT (A) has recorded a categorical factual finding that the payment made by the employer to the assessee was not voluntary, and that the compensation was paid in....